hedge fund investments

NYC Pension Appoints New Heads of Private Equity, Hedge Fund Investments

The New York City Bureau of Asset Management – the entity that manages assets for the city’s retirement systems—has appointed two staffers to head its private equity and hedge fund investments, respectively.

The backgrounds of the appointees, from Chief Investment Officer:

Effective immediately, NYC’s comptroller appointed Alex Doñé as head of private equity and Neil Messing to take over the hedge fund portfolio.

Doñé has worked at the bureau, investing the city’s five pension funds, since 2012. Prior to the promotion, he served as the fund’s executive director of private equity and oversaw its $5.6 billion emerging managers program.

He spent the bulk of his earlier career in the private sector, with 16 years of experience in investment banking and private equity. Doñé has worked at Clearlake Capital Group, KPMG Corporate Finance, and Merrill Lynch. For two years, he served as a presidential appointee at the US Department of Commerce’s Minority Business Development Agency.

The NYC pensions’ new head of hedge funds likewise built his background in the private sector before becoming an asset owner in 2011. Messing most recently served as the fund’s senior investment officer responsible for hedge funds. According to the NYC comptroller’s office, he “built and managed a diversified $4 billion portfolio of direct hedge fund investments and a fund-of-hedge funds” for the pensions.

The CIO of the city’s pension system commented on the appointments:

“The appointment of Alex and Neil will strengthen the investment operations of the Bureau of Asset Management,” said Scott Evans, CIO of the New York City Pension Funds. “Alex and Neil are ethical and sophisticated investment managers and I am excited to see them take on new roles as part of senior leadership.”

The New York City Bureau of Asset Management manages $160 billion in assets for the city’s pension systems.

Video: CalSTRS CIO Talks Long Term Investing And Handling Market Volatility

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Chris Ailman, CIO of the California State Teacher’s Retirement System, sat down with CNBC last week to talk about handling market volatility, re-balancing the fund’s portfolio and being a long-term investor.

Ailman also talks about why CalSTRS invests in hedge funds and why that won’t be changing any time soon.

Video credit: CNBC

CalPERS Sticking With Commodities After Considering Pullback

CalPERS is not exiting commodities, a fund spokesman said this week, although it had slashed its commodities portfolio earlier this summer. CalPERS’ complete pullback from hedge funds made some observers wonder whether other allocation shifts were on the horizon.

But for now, the fund says its commodities investments will continue as planned. From Reuters:

The $300 billion Calpers…has maintained a portfolio of commodity futures tied to the S&P GSCI since 2008.

[…]

“This [hedge fund] decision does not impact … commodities, or any other program, at Calpers,” he said in an email, referring to Calper’s decision to pull out of hedge funds entirely.

Some of the hedge funds on Calpers list may have commodities exposure and dropping them could indirectly affect sentiment in the sector, investment advisers said.

[…]

The Calpers’ commodities portfolio has fluctuated in value since its 2008 inception, due to both the performance of the S&P GSCI and portfolio adjustments made by Calpers.

From $1.4 billion at end-June 2008, it plunged nearly 60 percent in value over the next year to around $600 million after the financial crisis. After rising to $700 million in 2010 as commodity markets rebounded from the crisis, the portfolio suddenly rocketed in value, reaching a high of $3.2 billion at end-June 2012, apparently from new money channeled by Calpers.

But as commodity markets struggled again in 2013 and Calpers realized little earnings from the investment, it slashed the portfolio, bringing it to $1.3 billion by June this year, a preliminary report for 2014 showed. Much of the funds were diverted to inflation-linked bonds, Calpers data showed.

Reports had surfaced back in August that CalPERS was seriously considering cutting back its commodities investments. The Wall Street Journal wrote:

One of the more-dramatic moves under consideration is a complete pullback from tradable indexes tied to energy, food, metals and other commodities, according to people familiar with the discussions. Calpers began making such investments in 2007 as a way of diversifying its portfolio…

[…]

The discussions are taking place between the fund’s interim Chief Investment Officer Ted Eliopoulos and Calpers’s other top investment executives. The Calpers board hasn’t yet been informed about any possible changes and no final decisions have been made, the people said.

Obviously, CalPERS never pulled the trigger on a commodities exit. But the fund has shown a willingness to quickly shift its investment policy and a preference for low-cost investments.

Rhode Island, Raimondo Defend Hedge Fund Position After CalPERS Pullout

Rhode Island’s pension fund invests nearly $2 billion in hedge funds, or 14 percent of its overall portfolio.

In light of CalPERS high-profile pullback from hedge funds, The Providence Journal asked Gina Raimondo, Rhode Island’s Treasurer, for her thoughts on CalPERS’ decision and the fate of hedge funds in Rhode Island’s portfolio:

State Treasurer Gina Raimondo sees no immediate reason to pull Rhode Island’s pension money out of hedge funds, just because the largest public pension fund in the U.S. – the California Public Employees Retirement System – has announced plans to do so over the next year.

[…]

Asked Tuesday if Rhode Island would take its cue from Calpers, Raimondo chief of staff Andrew Roos said: “We will continue to learn from best practices around the country and will look closely at the CalPERS decision.’’

But he said: “Rhode Island’s pension fund is less than 3% the size of Calpers and has very different funding and cash-flow needs. Given our fund’s different characteristics, we will continue to pursue strategies that pursue the best outcomes for Rhode Island pension participants.’’

Roos acknowledged that the state’s hedge-fund-heavy strategy brings loads of fees. He also admitted that the hedge funds have under-performed in 2013 compared to the rest of the pension fund’s portfolio. But he stood by the investments. He told the Providence Journal:

“Every action the State Investment Commission has taken during this administration has been to promote retirement security and ensure funds will be available to pay pension checks to our retirees,’’ he said.

“After the financial collapse of 2008-2009 when the fund lost over $2 billion dollars, the SIC reviewed its policies and unanimously adopted a plan to reduce volatility while continuing to pursue strong long-term returns … As a part of the strategy to reduce volatility while maintaining strong long-term returns, the SIC improved the pension fund’s diversification, which included making allocations to hedge funds….’’

“This strategy is working,’’ Roos said. “Over the last three years we have reduced the volatility of this portfolio by 50% and achieved strong returns (1 year: 15.12%; 3 year: 9.05% as of June 30, 2014) … [But] like every other investment the state makes, the SIC and staff are constantly evaluating and making adjustments to the hedge fund allocation to ensure it is performing as intended.’’

Rhode Island’s pension fund paid $70 million in investment fees in the 2012-13 fiscal year. Meanwhile, the state’s hedge fund investments returned around 8.8 percent in 2013-14, while the pension fund’s overall portfolio returned 15 percent over the same period.

New York Common Fund’s Hedge Fund Target Is “Under Review”

New York’s Common Retirement Fund says it is “reviewing” its hedge fund investments, including the allocation targets for such investments as set in its investment policy.

The Common Fund makes investments for the New York State and Local Retirement System (NYSLRS) as well as other systems. Pension360 previously covered the fund’s investment policy, which allows for higher allocations towards hedge funds.

Now, the Common Fund is reviewing those allocations. From Business Insider:

“We are currently reviewing our asset allocations with the goal of maximizing our risk-adjusted return on investments,” a spokesman for state Comptroller Tom DiNapoli told Business Insider on Tuesday.

[DiNapoli] stressed that only a small amount of their investments are tied up in hedge funds, however — only about 3.2% or $5.6 billion for the DiNapoli’s fund, for example.

“The target allocation, which is currently under review, was set at 4% in 2009,” DiNapoli’s office added. If he decides to maintain that target, he would actually have to move more money into hedge funds.

[…]

Scott Evans, the chief investment officer of New York City’s retirement system, said the Big Apple’s pension fund has no plans to divest from its investments in hedge funds. He pointed to the relatively small size of the city’s hedge fund investment in his explanation for why he had no plans to eliminate it.

“Hedge funds are an alternative asset class that can help improve the balance between risk and return. They are optional,” Evans said in a statement. “Two of our five systems have opted to pass on those allocations. The other three have allocated 4-5% of assets to hedge funds. We have no current plans to recommend changes to this program.”

A spokesman for the fund later clarified to Business Insider that the review was routine and scheduled, and not connected to CalPERS’ decision to end its hedge fund program.

Photo by: Christopher Chan via Flickr CC License

CalPERS’ Withdrawal From Hedge Funds Not Yet Indicative of Broader Trend

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.

Report: New Jersey Pension Investments Trailed S&P 500 For Seven of Last Eight Years

New Jersey's investment returns vs. the S&P 500 CREDIT: IB Times — New Jersey’s investment returns vs. the S&P 500
CREDIT: IB Times

Last week, journalist David Sirota reported on the New Jersey pension system and its drastic shift towards hedge fund investments under Chris Christie.

This week, Sirota has analyzed the state’s financial records. His finding: despite the increased allocation toward hedge funds and other alternatives, the pension system has mostly underperformed relative to the broader market.

Sirota writes:

In seven of the eight years since the state began shifting pension funds into so-called alternative investments, returns have fallen well short of the broader stock market, an analysis of state financial records shows. In those seven years, New Jersey’s alternative investment portfolio has produced gains of just more than half of the S&P 500, the widely watched index seen as a proxy for shares of large corporations.

[…]

The below-market results from the state’s $20 billion alternative investment portfolio belie repeated assurances from New Jersey officials who said the investments would overperform the stock market. Instead, the results buttress arguments by investors like Warren Buffett and some local lawmakers, who assert that pension money should be invested in stock index funds rather than hedge funds, private equity, venture capital, real estate and other alternative investments.

Christie has responded to the fund’s under-performance by claiming that, although it has under-performed the broader market, it has beaten the fund’s internal projections.