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:
with this comparison:
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.