Who to Believe on Hedge Funds

Either Guy Haselmann, who has been a member of the New Jersey State Investment Council which oversees investments of the state’s pension funds since 2010, came out with an opinion piece defending hedge funds saying:

Numerous inaccurate stories and statements have also been made about hedge funds and the role they should play in the pension portfolio. [Our presumptive next governor Phil] Murphy said that “the State Investment Council paid $270 million in fees to hedge fund managers — $142 million of which was paid without regards to returns.” This statement is misleading as an absolute dollar amount of fees paid is a meaningless number.  For example, anyone should be willing to pay $100 million, if they received $1 billion in return.  It is net returns that matter and which have informational value.

Murphy also incorrectly said that “the Hedge Fund program lost 13 percent.” The fact is that in fiscal year 2015, the hedge fund program returned 4.21 percent and generated nearly $390 million of net profits, after all fees were paid. The hedge fund program’s return was higher than many other segments of the portfolio, including the fixed income and international equity investments.

With stock and bond prices hitting all-time highs in 2016, finding hedge funds, or other types of exposures, that offer diversification, has never been more important to the portfolio. As a case in point, the S&P 500 return in 2008 was negative 37 percent, while the return of the HFRI Macro Hedge Fund Index was greater than 5 percent during the same period.

Overall, hedge fund investments have served the state pension plan well over a long period of time, offering meaningful diversification, and better total returns with less risk.

The pension plan’s large underfunded status means that it is vital to avoid significant losses.  Hedge funds can provide a type of exposure that improves the risk versus reward characteristics of the overall portfolio. Demonizing hedge funds without full understanding of the construction of the entire portfolio is detrimental to all beneficiaries.

Or Pensions & Investments:

hf-pi

 

with this comparison:hedge-fund-returns

Also in this issue of P&I were stories on CalPERS studying ways to keep private equity afloat, Kentucky planning to cut hedge funds by half, and Texas trimming its hedge fund roster.

5 responses to this post.

  1. Posted by Anonymous on December 14, 2016 at 8:26 pm

    How the **** did Texas get 6.2%? What are they doing right?

    Reply

  2. Posted by Anonymous on December 15, 2016 at 12:14 am

    John,
    I give you credit for at least publishing the op ed. The author cherry picked pieces of data throughout. It was terrible. Also, the author is a hedge fund shill per his linked in profile. Yep, he’s on the investment council. That’s one way to bump up those fees. HFs have underperformed since most them went public (aka the smart money left). Wasn’t expecting you to pick apart the really flagrant fact picking in the op Ed, but hey…you at least noted it

    Reply

  3. Posted by Anonymous on December 15, 2016 at 7:01 am

    http://www.nj.com/opinion/index.ssf/2016/12/state_debt_the_skys_the_limit_before_lame-duck_chr.html#incart_river_mobileshort_index

    This is the conduit debt I’ve been talking about on this blog. Default on our pension obligation when ALL of this conduit debt is subject to annual appropriations by the Legislator and approval by the governor. Or at least subject to the Governor’s LIV authority!

    Reply

  4. […] « Who to Believe on Hedge Funds […]

    Reply

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