Dutch Pension Turns $56 Million Profit From Hedge Fund Exit


The Netherlands’ second-largest pension fund, PFZW, decided late in 2014 to completely exit its $2 billion hedge fund portfolio.

Two months later, after a rapid-fire wind down, the pension fund has exited all hedge funds – and it made a $56 million profit in the process.

From ai-cio.com:

Dutch healthcare sector pension PFZW netted a $56 million profit in two months as it exited hedge funds last year.

PGGM— which manages assets on behalf of PFZW—completed the majority of the liquidation in November and December. PFZW announced last week that it had closed its allocation to the asset class, citing complexity, costs, and sustainability issues.

Ruulke Bagijn, CIO for private markets at PGGM, said her company had raised $2.44 billion from the sale of the hedge fund holdings.

“The successful liquidation process of PFZW’s capital was driven by skilful use of the unique operational infrastructure PGGM has in place, as well as accommodating market circumstances,” she said.


PFZW’s hedge fund holdings performed in line with expectations and “contributed to diversification of the portfolio”, Bagijn said, but the pension had “a less strong belief in the positive contribution of hedge funds” in the future.

However, Bagijn emphasised that the decision was made by PFZW and would not affect PGGM’s other clients. This is despite Jan Soerensen, PGGM’s head of hedge funds, leaving the group last year.

PFZW manages $185 billion in assets for the country’s health care workers.

Preqin: More Pensions Invested in Private Equity, But Average Allocation Down From 2013

opposing arrows

Data from Preqin shed some light on private equity activity in 2014, and showed that more public pension funds invested in private equity in 2014.

Even still, public pensions’ average allocation to private equity has dipped slightly since 2013.

From ThinkAdvisor:

Preqin, the investment alternatives data provider, found that the number of active U.S.-based public pension funds in private equity has risen year over year, from 266 in 2010 to 299 in October 2014. The average allocation to private equity was 7% as of October 2014, down from 7.2% a year earlier.

Preqin said private equity looked set to remain an important component of U.S.-based public pension funds’ portfolios for years to come, offering investors good portfolio diversification and outsized returns over the long term.

Fundraising for the year was likely to be strong, Preqin reported, with $254 billion raised by funds that closed in the first half.

A record 2,205 funds are currently in the market seeking an aggregate $774 billion, compared with 2,098 funds that were looking to raise $733 billion in January.

Preqin also reported that its internal data showed co-investment would increase in 2014. It acknowledged that concerns about high expenses and competition were holding back some general partners from offering co-investment opportunities. But researchers found that co-investment figured prominently in the plans of many GPs and limited partners.

Preqin said that as the private equity industry matures and investors become more sophisticated, co-investment activity could increase, with benefits for both fund managers and limited partners.

Preqin also found that venture capital funds raised more money in 2014 than in 2013.


Photo by  jjMustang_79 via Flickr CC License

Pension Funds Find Farmland To Be Fertile Investment


Institutional investors are donning their straw hats, opening their tool sheds and getting to work in the crop fields.

Investors are drawn to farmland by strong returns and its weak correlation with other assets.

From The Economist:

Institutional investors such as pension funds see farmland as fertile ground to plough, either doing their own deals or farming them out to specialist funds. Some act as landlords by buying land and leasing it out. Others buy plots of low-value land, such as pastures, and upgrade them to higher-yielding orchards. Investors who are keen on even bigger risks and rewards flock to places such as Brazil, Ukraine and Zambia, where farming techniques are often still underdeveloped and potential productivity gains immense.

Farmland has been a great investment over the past 20 years, certainly in America, where annual returns of 12% caused some to dub it “gold with a coupon”. In America and Britain, where tax incentives have distorted the market, it outperformed most major asset classes over the past decade, and with low volatility to boot. Those going against the grain warn of a land-price bubble. Believers argue that increasing demand and shrinking supply—as well as urbanisation, poor soil management and pressure on water systems that are threats to farmland—mean the investment case is on solid ground.

It is not just the asset appreciation and yields that attract outside capital, says Bruce Sherrick of the University of Illinois at Urbana-Champaign: as important is the diversification to portfolios that farmland offers. It is uncorrelated with paper assets such as stocks and bonds, has proven relatively resistant to inflation, and is less sensitive to economic shocks (people continue to eat even during downturns) and to interest-rate hikes. Moreover, in the aftermath of the financial crisis investors are reassured by assets they can touch and sniff.

Read the full report from the Economist here.

Paul Singer: CalPERS’ Hedge Fund Exit Was “Off-Base”

Paul Singer

Paul Singer, a hedge fund manager, activist investor and billionaire, wrote in a recent letter to clients that CalPERS’ exit from hedge funds was “off-base”.

CalPERS said at the time that its decision to exit hedge funds was based on their “complexity, cost and the lack of ability to scale at CalPERS’ size”.

Singer responded to those criticisms, according to CNBC:

“We are certainly not in a position to be opining on the ‘asset class’ of hedge funds, or on any of the specific funds that were held or rejected by CalPERS, but we think the decision to abandon hedge funds altogether is off-base,” Singer wrote in a recent letter to clients of his $25.4 billion Elliott Management Corp.


On complexity, Singer wrote that it should be a positive.

“It is precisely complexity that provides the opportunity for certain managers to generate different patterns of returns than those available from securities, markets and styles that are accessible to anyone and everyone,” the letter said.

Singer also took issue with claims that drawbacks of hedge funds include opaqueness and high fees. From CNBC:

“We also never understood the discussions framed around full transparency. While nobody wants to invest in a black box, Elliott (and other funds) trade positions that could be harmed by public knowledge of their size, short-term direction or even their identity.”

Singer also slammed CalPERs for its complaint about the relative high cost of hedge funds.

“We at Elliott do not understand manager selection criteria based on the level of fees rather than on the result that investors could reasonably expect after fees and expenses are taken into account,” he wrote.

The broader point Singer makes is on the enduring value of hedge funds to diversify a portfolio.

“Current bond prices seem to create a modest performance comparator for some well-managed hedge funds. Moreover, stocks are priced to be consistent with bond prices, and we have a hard time envisioning double-digit annual stock index gains in the next few years,” the letter said.

“Many hedge funds may have as much trouble in the next few years as institutional investors, but investors should be looking for the prospective survivors of the next rounds of real market turmoil.”

Hedge funds have returned 2.92 percent this year, according to Preqin. Singer’s hedge fund, Elliott Associates LP, has 13.9 percent annually since 1977.


Photo by World Economic Forum via Wikimedia Commons

San Francisco Pension To Vote Again On Hedge Funds

Golden Gate Bridge

The San Francisco Employees’ Retirement System is once again weighing whether to begin investing in hedge funds.

Last Spring, the fund formulated a plan to invest up to 15 percent of its assets, or $3 billion, in hedge funds. But the vote has been tabled three times since then.

This week, the fund will vote again on the issue.

From SFGate.com:

The board of the San Francisco Employees’ Retirement System is scheduled to vote Wednesday on a controversial proposal to invest $3 billion — 15 percent of its assets — in hedge funds. The system, which manages $20 billion in pension money on behalf of about 50,000 active and former city employees, has no hedge funds today.


A 15 percent allocation would definitely have an impact on the San Francisco pension fund. William Coaker Jr., who joined the system Jan. 30 as chief investment officer, wants to put 15 percent of its assets in hedge funds as a way to protect against a market correction. But some board members and pensioners see them as too expensive and risky.


Earlier this year Coaker and his staff, along with outside consultant Leslie Kautz of Angeles Investment Advisors, recommended investing 15 percent of the system’s assets in hedge funds as part of a realignment of its portfolio. The goal was to “reduce volatility in investment returns, improve performance in down markets, enhance diversification of our plan assets, increase the flexibility of the investment strategy, and to increase alpha (excess returns),” according to minutes of the June 18 meeting. Coaker did not return phone calls.

A vote on the measure was scheduled for October but shortly before the meeting, board President Victor Makras learned that Kautz’ firm has a fund of hedge funds registered in the Cayman Islands. “That was a material fact,” Makras said. “I continued the item and instructed the consultant to disclose that to my satisfaction.”

If the fund does vote to invest in hedge funds, there would be the following allocation changes, according to SFGate:

U.S. and foreign stocks would drop to 35 percent from 47 percent of assets. Bonds and other fixed-income would fall to 15 percent from 25 percent. Real estate would rise to 17 percent from 12 percent. Private equity would rise to 18 percent from 16 percent. And hedge funds would go to 15 percent from zero.

The San Francisco Employees’ Retirement System manages $20 billion in assets.