According to CaIPERS Interim Chief Investment Officer (CIO), “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 CaIPERS’ size, the ARS [Absolute Return Strategies] program [CaIPERS’ internal name for hedge funds] is no longer warranted.”
The staff recommendation, supported by CaIPERS’ investment committee, will exit 24 hedge funds and six hedge fund-of-funds valued at approximately $4 billion.
Last September, the CaIPERS board adopted a set of 10 “Investment Beliefs” to inform investment decisionmaking processes such as this one. Investment Belief 7 says, “CalPERS will take a risk only where we have a strong belief we will be rewarded for it.” Belief 8 says, “Costs matter and need to be effectively managed.”
The decision to exit the funds was not based on the performance of the program. CaIPERS will spend the next year strategically exiting current investments in a manner that best serves the interests of the portfolio.