Photo: CalPERS board

The CalPERS board meets at headquarters in Sacramento. (Robert Durell / For The Times)

By Marc Lifsher
September 15, 2104

SACRAMENTO — The country’s biggest public pension system is getting out of hedge funds.

The California Public Employees’ Retirement System, with $298 billion worth of investments in its portfolio, announced that over the next year it plans to sell about $4 billion worth of hedge fund investments as part of a continuing process of simplifying its portfolio and reducing investment costs.
[The fund] will take risk only where we have a strong belief we will be rewarded for it. – One of CalPERS’ revised guidelines

Hedge funds, which are private partnerships that invest in a wide variety of sometimes speculative markets, are too complicated and expensive for CalPERS’ needs, said Ted Eliopoulos, the fund’s interim chief investment officer.

CalPERS said the decision wasn’t based on the performance of the program.

Although hedge funds “are a viable strategy for some,” Eliopoulos said, they no longer fit well into CalPERS’ overall investment mix.

Eliopoulos told the CalPERS board Monday that the investment staff planned to sell — gradually over the next 12 months — the fund’s stake in 24 hedge funds and six mega-hedge funds that invest in other hedge funds.

During that period, investment officers will come up with alternate ways to invest the freed-up money. The board informally endorsed the plan, though it took no vote, said CalPERS spokesman Brad Pacheco.

CalPERS’ decision to sell its hedge fund holdings probably will be closely watched by other public pension systems. Over the last decade, many funds have been increasing their hedge fund stakes.

But a growing number of public pension funds in California and other states are getting out of hedge funds because of the high fees, risk and recent modest returns.

Last year, the L.A. city department that manages the pensions for the police and fire departments decided to sell its hedge funds. They represented just 4% of the department’s investment portfolio, but 17% of the fees it paid.

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