CalPERS' Hedge Fund Gambit and a Changing Tech Mindset
High fees, too much complexity, putrid relative performance—CalPERS, the influential public employee pension plan in California, this week ticked all the standard complaint boxes that many institutional investors have voiced in recent years about their hedge fund managers. Few, though, have made so public a stand about it as the $300 billion mandate did, surprising many.
In part, CalPERS is bucking the trend. Despite investors' recent misgivings, growth in hedge fund allocations has mostly continued steady and unabated, even while investors have become far more picky in the process. That's raised awareness about operational and technological due diligence even at the smallest of shops, which I've written about in October's issue of Waters.
According to a recent study by buy-side provider eVestment, fund investments have grown on an average of 1.6 percent in 2014, and in-flows were positive each month of this year. This was especially the case for event-driven equity strategies and activist funds, which have pulled in the lion's share of new assets as institutions flee from traditional equities.
More Tech Saavy
But just the same, the recent tech story at public investors—particularly in Canada, but increasingly in the United States, too—presages this kind of news.
As I wrote in a feature for Waters last summer, these organizations' technology has historically dragged well behind its buy-side partners and sell-side intermediaries, in part because there wasn't a ton of need for it. Also, many tend to be very operationally cost-constrained due to their public nature.
What I found then is that this is quickly changing, especially among the larger mandates and endowments. In fact, a critical mass of significant tech refresh projects—from bolt-on valuation analytics tools to sweeping investment book of record (IBOR) platforms—are making these investors more interesting targets for third-party providers than ever.
So, how are they justifying these projects? Well, political calls for transparency and having better accounting information are definitely involved. Some of their systems are ancient, and that's being generous. But the sexier driver is that many of these organizations are pondering greater co- and direct investment, and bringing in more in-house investment and portfolio management talent than they once had, instead of relying exclusively upon private equity mainstays and, indeed to the CalPERS point, external hedge funds. The mix is changing, and CalPERS might just be way out in front.
Now, this doesn't always work perfectly; for example, Harvard's endowment jumped right in on developing a handful its own fund management groups, which reportedly hasn't gone quite according to plan so far. And some in the industry have vocally wondered whether CalPERS' recent stand has less to do with dismay about the innate qualities of the hedge fund model, and more to do with the specific hedge funds' performance it's been working with.
More Coming?
No matter, to make a move like this indicates a certain belief from CalPERS' that its alternatives are better. Clearly, whatever those alternatives are, Sacramento also believes it has the personnel and technical wherewithal to pursue them. And examples abound from Calgary and Toronto to Austin, Texas suggesting CalPERS aren't the only ones giving this some serious thought—even if they see no need to completely abandon their alternatives managers just yet.
It could be my background in political science or obsession with locality, but the subject continues to pique my interest, and anyone working with public investors these days to strengthen their technology, I would love to hear from on 646.490.3968 or at timothy.murray@incisivemedia.com.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@waterstechnology.com or view our subscription options here: http://subscriptions.waterstechnology.com/subscribe
You are currently unable to print this content. Please contact info@waterstechnology.com to find out more.
You are currently unable to copy this content. Please contact info@waterstechnology.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@waterstechnology.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@waterstechnology.com
More on Emerging Technologies
Waters Wavelength Podcast: Broadridge’s Joseph Lo on GPTs
Joseph Lo, head of enterprise platforms at Broadridge, joins the podcast to discuss AI tools.
Man Group CTO eyes ‘significant impact’ for genAI across the fund
Man Group’s Gary Collier discussed the potential merits of and use cases for generative AI across the business at an event in London hosted by Bloomberg.
BNY Mellon deploys Nvidia DGX SuperPOD, identifies hundreds of AI use cases
BNY Mellon says it is the first bank to deploy Nvidia’s AI datacenter infrastructure, as it joins an increasing number of Wall Street firms that are embracing AI technologies.
This Week: Linedata acquires DreamQuark, Tradeweb, Rimes, Genesis, and more
A summary of some of the latest financial technology news.
Systematic tools gain favor in fixed income
Automation is enabling systematic strategies in fixed income that were previously reserved for equities trading. The tech gap between the two may be closing, but differences remain.
Euronext microwave link aims to cut HFT advantage in Europe
Exchange plans to level playing field between prop firms and banks in cash equities with cutting edge tech.
Why recent failures are a catalyst for DLT’s success
Deutsche Bank’s Mathew Kathayanat and Jie Yi Lee argue that DLT's high-profile failures don't mean the technology is dead. Now that the hype has died down, the path is cleared for more measured decisions about DLT’s applications.
‘Very careful thought’: T+1 will introduce costs, complexities for ETF traders
When the US moves to T+1 at the end of May 2024, firms trading ETFs will need to automate their workflows as much as possible to avoid "settlement misalignment" and additional costs.
Most read
- Deutsche Börse democratizes data with Marketplace offering
- Sell-Side Technology Awards 2024: All the winners
- Sell-Side Technology Awards 2024: Best sell-side front-office platform—Bloomberg