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Bailey McCann, Opalesque New York: CalPERS, the largest pension system in the US, announced today that it will divest its entire $4 billion hedge fund program. The pension said the program was too expensive and too complex to effectively move the needle for an already large portfolio. The staff recommendation, supported by the Investment Committee, will exit 24 hedge funds and six hedge fund-of-funds.
Following the 2008 global financial crisis, CalPERS began examining ways to ensure it was less susceptible to future large drawdowns. The System restructured its investment operations, improved its internal oversight and control functions, and refocused some of its investment programs. In February 2014, the CalPERS Board adopted a new asset allocation mix that reduces risk to the portfolio, while still being able to achieve its return goal of 7.5 percent.
Last year, the pension also changed its "investment beliefs" which define the overall approach to the portfolio. Investment Belief 7 states that "CalPERS will take risk only where we have a strong belief we will be rewarded for it." Investment Belief 8 notes that "Costs matter and need to be effectively managed."
"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 ARS program doesn’t merit a continued role," said Ted Eliopoulos, CalPERS Interim Chief Investment Officer in a statement....................... To view our full article Click here
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