CalPERS said Monday it will eliminate all investments in hedge funds, unrelated pools of securities only available to top-shelf investors.
The pension fund’s investment committee voted to eliminate 30 hedge fund investments worth a combined $4 billion. CalPERS has been scaling back its hedge fund holdings by about $1 billion in the past year as it undergoes a tweaking of its portfolio in an effort to reduce risk.
Hedge funds have lagged CalPERS’ overall investment performance. While the entire CalPERS portfolio has earned annual average returns of more than 12 percent the past five years, hedge funds have earned just 5.6 percent. They also can be expensive: CalPERS paid hedge fund managers $115 million in the 2012-13 fiscal year, the latest data available.
“Hedge funds are certainly a viable strategy for some, but at the end of the day, when judged against their complexity, cost, and the lack of ability to scale at CalPERS’ size, the (hedge fund) program doesn’t merit a continued role,” said Ted Eliopoulos, interim chief investment officer, in a prepared statement.
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The investment committee of CalPERS constitutes the entire governing board.