Bucking persistent criticism of hedge fund returns coming from many quarters this year, chief investment officers of big state pension funds were able to report strong returns for their hedge fund portfolios.
Sources say public pension plan hedge fund portfolios by design did not keep pace with the returns of the S&P 500 and MSCI All-Country World indexes, which returned 19.7% and 12%, respectively, for the year ended Sept. 30.
That compares to the median one-year return of 9.1% of the 16 hedge fund portfolios in Pensions & Investments' universe as of Sept. 30.
The median of the big public funds topped the 6.4% return of the industry's most commonly used index — the HFRI (Hedge) Fund Weighted Composite, as well as MSCI InvestorForce's Trust Funds' median hedge fund returns for public and corporate defined benefit plans (7.1% and 7%, respectively) and endowments and foundations (6.7%).
“The broad universe of hedge funds tends to be long higher volatility and short lower volatility. We find that a broader mix of strategies is very helpful in smoothing out returns over time,” said John Tuck, director of private equity and alternatives for the $37.5 billion Public School and Education Employees Retirement Systems of Missouri, Jefferson City.
That pension fund's $5.1 billion hedge fund portfolio was the best performer in P&I's select universe, returning 12.1%, and outperforming its internal benchmark by 450 basis points for the year ended Sept. 30.
Other top performers in P&I's universe for the period:
nthe $2.5 billion hedge fund portfolio of the $29.5 billion South Carolina Retirement System Investment Commission, which exceeded its benchmark by 430 basis points with a 10.8% return; and
nthe $5.6 billion hedge fund portfolio of the New Jersey Division of Investment, which returned 10.5%, 270 basis points over its benchmark, on behalf of the $78.5 billion New Jersey Retirement System.
Aggregate hedge fund assets of the 16 public funds totaled $59.4 billion as of Sept. 30. The 16 funds had $951.3 billion in total assets.