The vote will allow CalPERS to now invest $2 billion, up from $1 billion, in these esoteric investment vehicles (See CalPERS May Move into Funds of Hedge Funds ). The move was expected, despite statements in the spring by CalPERS suggesting otherwise (See CalPERS: Greater Hedge Fund Commitment Not on Horizon ). This $2 billion, although large in absolute terms, is still relatively small when compared to CalPERS’ $168 billion in total assets.
The nation’s largest public pension fund will also, for the first time, invest in fund of funds. It is doing so because investing in in these funds can reduce the amount of time dedicated to due diligence, as well as the fact that they allow CalPERS to be a more passive investor, according to Dow Jones. CalPERS follows such funds as the Massachusetts state pension fund into fund of funds, which are vehicles that invest in underlying hedge funds in order to increase diversification and reduce overall risk of overexposure to one manager.
CalPERS has enjoyed good returns from its hedge fund investments since it started utilizing such vehicles in April 2002, according to Dow Jones. The returns have been 5.6% since then, and although this is well below the ten-year average for hedge funds, it is well above CalPERS benchmark, the Wilshire 2500 Index, which only returned 1.6% in that time.