New Jersey's plan to slash about $2 billion of its hedge fund investments sounds simple: Pick the top managers, ask others for redemptions and collect the cash.
Yet overseers of the state's pension system can look cross-country to see how long that can take. Five years after California's biggest retirement plan decided to pull out of all hedge funds, its managers are still waiting to retrieve roughly $150 million from Chatham Asset Management.
Most of the hedge funds that once tended investments for the $365.1 billion California Public Employees' Retirement System have returned the pension system's cash, leaving Chatham with the bulk of money still outstanding. New Jersey, too, has $363 million in a Chatham hedge fund, and while the portfolios are different, they share at least one controversial investment: Holdings tied to American Media, longtime owner of publications including the National Enquirer.
After CalPERS asked to withdraw its money from a special fund managed by Chatham, the pension system watched the vehicle's performance decline. The Chatham fund generated an annualized return of 7.3% in the five years through 2014, when CalPERS made its decision to cut ties with hedge funds. But by the middle of last year the lifetime annualized return had slumped to 2.3%, according to the most recent data publicly available.
In 2016 alone, the special fund suffered a 16% loss without any public explanation. The broader high-yield market rallied that year, and Chatham's main high-yield fund gained 24%. CalPERS and Chatham declined to comment on the divergence.