CalPERS' decision to exit hedge funds was the topic of debate again recently, this time at the CFA Institute's 60th Annual Financial Analysts Seminar in Chicago, July 20-23.
Yiorgos Allayannis, a professor at the University of Virginia's Darden School of Business, led the discussion, which was based on a case study published by the school last month.
Session attendees debated the decision from all angles.
Among the points were: whether the fund the $302.2 billion California Public Employees' Retirement System, Sacramento, properly leveraged its size to negotiate the best fee and term structures and whether the fund had the resources to select the best hedge fund managers.
CalPERS announced in September it would eliminate its $4 billion hedge fund program, citing complexity, cost and scale.
Numerous attendees questioned the exit, given the absolute-return strategy portfolio had a higher Sharpe ratio compared to the global equity portfolio. They also argued that underperformance during a period when equity markets have risen sharply shows it was serving its purpose as a portfolio diversifier.
Ultimately , a show of hands found the audience roughly split 60/40, with the majority saying CalPERS' decision was the right one.