California is a bellwether for the rest of the country in many ways – and that sentiment applies to pension fund investment strategy, as well.
CalPERS made headlines this summer when it announced its decision to cut its hedge fund investments by nearly 50 percent. A handful of other funds, like the Los Angeles Fire and Police Pensions system and the Louisiana Firefighters’ Retirement System, have made similar decisions.
But those within the industry say none of that is indicative of a wider trend. From the Financial Times:
Alper Ince, managing director at Paamco, a California-based fund of hedge funds with $9bn of assets, believes that Calpers’ decision is unlikely to be indicative of a wider trend because “hedge fund investing has now become mainstream for pension funds”.
Arno Kitts, head of UK institutional at BlackRock, agrees: “People do pay attention to Calpers but there are plenty of hedge funds that have delivered consistent long-term performance with good risk-adjusted returns, which are uncorrelated with other assets.”
US public pension funds account for approximately 14 per cent of hedge fund assets owned by institutions, according to Preqin, the data provider.
Amy Bensted, head of hedge fund products at Preqin, says the shift by Calpers could fuel concerns that US public pension schemes are losing faith in the hedge fund industry.
“But I don’t think this is the start of a trend. The majority of US public pension schemes remain committed,” she says.
She points out that US pension funds in aggregate have been increasing their allocations to hedge funds steadily in recent years, a trend that has continued into 2014.
A recent Preqin survey found that 34 percent of hedge funds received more capital from pension funds in the first half of 2014 than they did in the second half of 2013.