Calpers Moves to Axe Hedge Funds

The program, which is known inside the pension fund as the Absolute Return Strategies (ARS), ties Calpers to 24 hedge funds and 6 fund-of-funds, all of which will be exited as a result of the move. The decision will take a year to fully implement, and staff associated with ARS will be reassigned within the scheme's investment office.

"We are always examining the portfolio to ensure that we are efficiently and cost-effectively achieving our risk-adjusted return goals," says Ted Eliopoulos, interim chief investment officer at Calpers. "Hedge funds are certainly a viable strategy for some, but at the end of the day, when judged against their complexity, cost, and the lack of ability to scale at Calpers' size, the ARS program is no longer warranted."

The exit, a staff recommendation that has been endorsed by the investment committee, is in line with Calpers' so-called "investment beliefs", a set of guidelines that govern how the fund invests its assets and achieves its return goal of 8.4 percent annually. The move was not related to the performance of ARS.

"The investment beliefs exist to provide a compass for the System's work to achieve its strategic goals," adds Henry Jones, chair of the investment committee and a board member at Calpers. "While the ARS analysis was no simple matter for Calpers, the investment beliefs provide guidance for a straightforward and principled conclusion that fits our needs."