Institutional chief investment officers, consultants and money managers said they are fielding a lot of questions, especially from trustees who hold fiduciary responsibility for the management of pension plans, endowments, foundations and other investment pools.
“Since the news about NYCERS broke, we've been doing quite a lot of research across the asset management community and the consensus about hedge funds is still `hold or increase,' but not increase by much,” said Bruce Keith, CEO of InfraHedge Ltd., London, State Street Corp.'s managed account hedge fund platform..
“People need to stop and take a bit of a deep breath. This is a mature industry and there's not a mass exodus,” said Raymond C. Nolte, co-managing partner, CIO and portfolio manager at hedge funds-of-funds manager SkyBridge Capital II LLC, New York.
Some CIOs are reviewing hedge fund portfolios with a keen eye and doing a lot of explaining to investment committees, trustees and stakeholders.
During the April 21 meeting of the South Carolina Investment Commission, Columbia, which oversees the assets of the $26.8 billion South Carolina Retirement Systems, Geoffrey Berg, acting CIO, was ready for questions from commissioners.
“I prepared for this because I thought I would be asked about NYCERS and hedge funds,” Mr. Berg said, according to a webcast of the meeting.
Performance of South Carolina's $2.9 billion hedge fund portfolio has been “significantly better than those of other public plans,” Mr. Berg said, noting that “over the last five years, some plans haven't had the luck that we've had with good hedge fund (partners). There are a lot of people who don't do hedge funds well.”
The low-beta hedge fund portfolio returned -1.06% for the 12 months ended Feb. 29, compared to -5.36% for the HFRI Fund Weighted Composite for the same time period, a performance report showed.
Despite South Carolina's good experience, Mr. Berg observed that “frustration has been bubbling over with (other) people asking what they are getting for the price paid” for hedge funds and added that he expected to see more institutions getting out of hedge funds.
Even before news of NYCERS' hedge fund decision hit the global stage, investment officials and trustees already were taking another look at hedge fund portfolios because performance has been uninspiring of late.
The $86.4 billion Ohio Public Employees Retirement System, Columbus, for example, hosted an educational session for trustees “to present both sides” of the hedge fund debate to trustees at a March 15 meeting, said Julie Graham-Price, a spokeswoman for the fund.
Presenters in the more than four hour session included Elizabeth Parisian a consultant with the American Federation of Teachers, who presented the case for why hedge funds are unsuitable, and Clifford S. Asness, co-founder and managing principal of hedge fund manager AQR Capital Management LLC, who argued hedge funds are good for institutional portfolios.
No action was taken at the meeting regarding OPERS' $6 billion hedge fund portfolio, Ms. Price-Graham said.