Key Takeaways
- • CalPERS, the nation's largest public pension fund managing $300 billion in assets, will liquidate its entire $4 billion hedge fund portfolio (representing over 1% of total assets under management) across 24 hedge funds and six hedge fund-of-funds over the next year.
- • The decision reflects CalPERS' assessment that hedge funds are too complex, too expensive, and lack sufficient scale benefits for an institution of its size, according to interim Chief Investment Officer Ted Eliopoulos.
- • The move signals a potential shift in how large institutional investors evaluate hedge fund allocations, as other public pension funds are similarly reassessing their hedge fund exposure amid growing concerns about fee structures and cost-benefit analysis.
- • Industry pushback is evident: Charles J. Gradante of Hennessee Group challenged the decision, arguing hedge funds are positioned to outperform during expected market volatility over the next five years.
- • CalPERS has not yet determined where it will reallocate the $4 billion in divested capital.
Summary
The California Public Employees' Retirement System announced on Monday that it will eliminate all hedge fund investments within one year, marking a significant strategic shift for the nation's largest pension fund. The decision affects a $4 billion portfolio comprising 24 hedge funds and six hedge fund-of-funds—roughly 1% of CalPERS' $300 billion in total assets under management. The fund oversees retirement benefits and investments for 1.6 million public employees including teachers, police officers, and firefighters.
CalPERS' interim Chief Investment Officer Ted Eliopoulos stated that while hedge funds represent "a viable strategy for some," the program "doesn't merit a continued role" when evaluated against complexity, cost, and the inability to achieve meaningful scale at an institution of CalPERS' magnitude. This conclusion follows months of deliberation by the pension fund's investment committee and reflects a deliberate reassessment of hedge fund utility for large institutional investors.
The decision carries substantial weight within the investment industry, as other major pension funds and institutional investors view CalPERS as a model due to its size and investment sophistication. The announcement arrives amid a broader industry trend in which public pensions are questioning hedge fund allocations. Growing institutional concern centers on fee structures; a widening consensus suggests hedge fund fees—typically 2% management fees plus 20% performance fees—are misaligned with value delivered, particularly for larger institutions seeking scale.
Industry observers expressed divergent views on the strategic merit of the move. Charles J. Gradante, managing principal of hedge fund advisory firm Hennessee Group, stated he was "a little shocked" by CalPERS' decision, arguing that hedge funds are positioned to thrive during an anticipated period of market turbulence, with funds likely to demonstrate their value "over the next five years" amid expected volatility in equity markets.
CalPERS has not yet announced where it will redeploy the $4 billion in capital freed by the hedge fund liquidation.
CalPERS' interim Chief Investment Officer Ted Eliopoulos stated that while hedge funds represent "a viable strategy for some," the program "doesn't merit a continued role" when evaluated against complexity, cost, and the inability to achieve meaningful scale at an institution of CalPERS' magnitude. This conclusion follows months of deliberation by the pension fund's investment committee and reflects a deliberate reassessment of hedge fund utility for large institutional investors.
The decision carries substantial weight within the investment industry, as other major pension funds and institutional investors view CalPERS as a model due to its size and investment sophistication. The announcement arrives amid a broader industry trend in which public pensions are questioning hedge fund allocations. Growing institutional concern centers on fee structures; a widening consensus suggests hedge fund fees—typically 2% management fees plus 20% performance fees—are misaligned with value delivered, particularly for larger institutions seeking scale.
Industry observers expressed divergent views on the strategic merit of the move. Charles J. Gradante, managing principal of hedge fund advisory firm Hennessee Group, stated he was "a little shocked" by CalPERS' decision, arguing that hedge funds are positioned to thrive during an anticipated period of market turbulence, with funds likely to demonstrate their value "over the next five years" amid expected volatility in equity markets.
CalPERS has not yet announced where it will redeploy the $4 billion in capital freed by the hedge fund liquidation.
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