CalPERS May Move into Funds of Hedge Funds

November 10, 2004 ( - The nation's largest pension fund may be moving into fund of hedge fund investments if the investment committee voices its support on Monday.

The California Public Employees’ Retirement System (CalPERS) will vote on increasing its hedge fund allocation by $1 billion, effectively doubling the public pension’s holdings in the hugely popular funds, Reuters reported.  Mark Anson , the CIO of the massive pension fund, has stated that the newly allocated funds will be split between direct investment in hedge funds and investment in fund of funds. The move is somewhat surprising, for in May the pension fund stated that there would be no new investments in hedge funds in the near future (See  CalPERS: Greater Hedge Fund Commitment Not on Horizon ).

The $166-billion pension fund, which saw 16.7% returns in fiscal year 2004, is seen by many smaller funds as a litmus test regarding novel investments. Until now, it has relied solely on direct investments in hedge funds, hand-picking an elite group of these investment vehicles to manage nearly $1 billion. This group of hedge funds includes Andor Capital, Apex Capital Management, and Symphony Asset Management, according to Reuters.

The move by CalPERS to jump into fund of hedge funds will almost certainly be met with some speculation by industry analysts and other pension funds. With fees always a fiduciary concern among pension funds, adding another layer of fees – as fund of hedge funds effectively do – is often seen as a possibly irresponsible investment. On the other hand, find of hedge funds can offer diversification and protection from over-exposure to one manager, a reason stated by Anson to support the move.