Pension Funds and Hedge Fund Investments post-CalPERS

When CALPERS, the country’s largest pension plan, decided to liquidate its hedge fund portfolio in 2014, there was an outpouring of predictions of a mass exodus of pension plans’ investments in hedge funds. The mass exit never occurred. In fact, pension plans continued to throw money at hedge funds at an increasing rate. As a result, most observers predict a continued growth of pension fund investments in hedge funds.

However, this may be an overly sanguine view which fails to take into account the slow decision making process of institutional investors in general and pension plans in particular. It took CalPERS over a year of intensive analysis to come to its decision, which it attributed to administrative cost and marginal contribution of hedge funds to their overall portfolio rather than lack of performance.

What may be more significant in determining the future of pension fund investment in hedge funds are the recent studies by pension plans that have caused to withdraw their assets from hedge funds. A short list of these plans include American Federation of Teachers, the UK Rail Plan, PFZW, Europe’s second largest pension plan, and New York City among others.