Public Pensions Still Hungry for Hedge Funds

In choosing to liquidate their hedge fund portfolios, CalPERS and NYCERS are the exception, not the rule, according to Preqin.

Despite two high profile divestments, US public pension funds remain committed to hedge funds, research has shown.

According to a Preqin analysis, 282 public pensions are currently invested in hedge funds, an increase from 276 in 2015 and 269 in 2014. An additional six funds are considering their first allocation to the investment vehicle, Preqin reported.

Pensions plans are also investing more in hedge funds, Preqin found, growing their allocations from 7.2% of their total portfolios in 2010 to 9.2% in 2016. Current investments in hedge funds by public pensions total $310 billion—nearly 10% of all hedge fund capital.

Additionally, more than a quarter of hedge fund managers said they have at least one public fund among their investors.

“There are more US public pension funds investing in hedge funds than ever and these pension funds are dedicating ever growing portions of their portfolios to the investment class,” said Amy Bensted, head of hedge fund products at Preqin.

This is in spite of decisions to exit hedge funds by the $296 billion California Public Employees’ Retirement System (CalPERS) and, more recently, the $55 billion New York City Employees’ Retirement System (NYCERS).

NYCERS, which has been invested in hedge funds since 2010, voted this month to liquidate its $1.7 billion allocation “as soon as practicable” due to “exorbitant fees” and underperformance.

While Preqin found “widespread levels of dissatisfaction with hedge fund performance”—approximately one-third of institutional investors said their hedge fund portfolio disappointed expectations in 2015—public pensions were not driven away. 

Instead, 93% of pension funds increased or maintained their allocations in 2015, compared to 2014. Just 7% invested less capital in hedge funds.

The Teacher Retirement System of Texas was the largest allocator to hedge funds, with a $15 billion commitment out of the total $125 billion portfolio, according to Preqin. The $90 billion Ohio Public Employees’ Retirement System followed suit with a $13 billion allocation.

Other large hedge fund investors included the Florida State Board of Administration, New Jersey State Investment Council, and New York State Common Retirement Fund.

public pension hfSource: Preqin’s “US Public Pension Funds Update” 

Related: Public Pensions Double down on Hedge Funds; NYC Pension To Liquidate Hedge Funds; Why Public Pension Giants and Hedge Funds Don’t Mix