The California Public Employees’ Retirement System’s (CalPERS) interim CIO has lauded its performance for the recent fiscal year in public equities (24.8%), private equity (20%), and even fixed income (8.3%). All together, CalPERS’ assets returned 18.4% in 2013-14.
One asset class notably did not get a shout-out from Ted Eliopoulos in his discussion of the results: hedge funds, or—as CalPERS refers to the bucket—absolute return strategies.
The $4 billion allocation made up only a small portion of CalPERS’ $302 billion portfolio, but that slice may get even smaller.
Citing an unnamed source, the Wall Street Journal reported July 23 that the pension fund planned to cut hedge fund allocation by 40%, to $3 billion. Given CalPERS’ July 23 valuation of its hedge fund portfolio, a 40% cut would in fact leave a $2.4 billion bucket.
CalPERS spokesperson Joe DeAnda also disputed that a decision had been reached about its hedge fund program, but confirmed to CIO that changes may be afoot: “The program is under review and has been discussed by the board several times in open session. No decisions have been made about the program at this time. During the review, the ARS portfolio may change in size and structure but conclusion of the review, and formal decisions about the program, likely will not occur until end of Q3 2014 at the earliest.”
In the fiscal year ending June 30, CalPERS’ hedge fund portfolio returned 7.1%, according to preliminary results, which was the weakest of any asset class except cash.
Eliopoulos, who has led the US’ largest public pension fund during its CIO search remarked that the last year had been “so far, so good.” He noted that CalPERS had posted double-digit returns for four out of the last five years, but cautioned that 2013-14 was “unusual” on two counts.
“One: This sheer magnitude”—25%—“of the public equity performance… That’s a big number. And that’s unusual,” he said.
Secondly, “What you’d expect in a year like that when our equity portfolio is doing so well is that the other asset classes—and in particular, fixed income—would have a less robust or even a negative return,” Eliopoulos explained. CalPERS’ fixed income program in fact beat its hedge fund investments and returned 8%.
“Having all of the major asset classes return positive numbers is somewhat unusual.”
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