Citing in-house investment expertise, New Yorks pension plan appears to be trailblazing the way for other pensions to feel confident investing directly in hedge funds, not through funds-of-funds, Dow Jones reports. A year ago, New Yorks state pension fund had $5 billion invested in hedge funds-of-funds. Today, at $500 million, thats a mere shadow of its former self.
Were maturing. This is evolution, said Robert Whalen, a spokesman for State Comptroller Thomas DiNapoli. Funds-of-funds have been helpful and provided expertise and access to blue-chip funds. But we have a strong in-house staff now with the networking and contacts needed, so we can create a more direct model.
Besides having the experience of investing in hedge funds through FoFs for a number of years now, pensions are looking to cut the additional expense of overlay management, which typically charges an additional 1% fee.
We wanted to eliminate that 1% fee, Whalen said.
Experts believe other pension plans will follow suit, especially since hedge funds lost an average of 19% last year, yet pension plans and endowments are still enamored with the investment category.
Certainly, that appears to be the case at the biggest pension plan in the nation, the California Public Employees Retirement System. We hire more staff and do more direct money management where we can get a clear fiscal advantage and have the resources to surpass the performance of external managers, said Clark McKinley, a spokesman for Calpers. Domestically, Calpers invests directly in 26 hedge funds. Internationally, though, it relies on nine hedge FoFs.
We use FoFs for international because we dont have the staff and resources to invest directly in international hedge funds, McKinley explained. Instead, we prefer to use FoFs since their managers have the resources and expertise needed to give us prudent investments in global markets that we might lack.