Confident that the third time will be the charm, officials at the $254.9 billion California Public Employees' Retirement System, Sacramento, are in the midst of a hedge fund portfolio makeover.
After top-to-bottom rehabs in 2005 and 2009, Egidio G. “Ed” Robertiello, senior portfolio manager of absolute-return strategies, has a new plan.
The hedge fund portfolio had $5.2 billion in assets as of Dec. 31.
The first revamp was a 180-degree change that diversified the portfolio by reducing the allocation to long/short equity managers to 30% from 70% and broadened seven other hedge fund strategies to make the portfolio's returns less closely correlated to those of equity markets (Pensions & Investments, Dec. 26, 2005). The second was an extreme makeover that moved nearly all direct investments in hedge funds to separate accounts from commingled funds, resulting in lower fees, more transparency and better control (P&I, April 20, 2009).
Despite these improvements, performance has trailed its policy benchmark on a cumulative and annual basis.
Mr. Robertiello's iteration recasts the role of hedge funds as a diversifier to the global equity risk within CalPERS' entire portfolio and reconstructs the strategy allocation by adding yet more uncorrelated investment approaches in pursuit of improved performance.