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'Let them sell their summer homes': NYC pension dumps hedge funds | Reuters

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'Let them sell their summer homes': NYC pension dumps hedge funds

By Edward Krudy

NEW YORK (Reuters) - New York City's largest public pension is exiting all
hedge fund investments in the latest sign that the $4 trillion public
pension sector is losing patience with these often secretive portfolios at
a time of poor performance and high fees.

The board of the New York City Employees Retirement System (NYCERS) voted
to leave blue chip firms such as Brevan Howard and D.E. Shaw after their
consultants said they can reach their targeted investment returns with less
risky funds.

The move by the fund, which had $51.2 billion in assets as of Jan. 31,
follows a similar actions by the California Public Employees' Retirement
System (Calpers), the nation's largest public pension fund, and public
pensions in Illinois.

"Hedges have underperformed, costing us millions," New York City's Public
Advocate Letitia James told board members in prepared remarks. "Let them
sell their summer homes and jets, and return those fees to their
investors."

The move is a blow to the $3 trillion hedge fund industry where managers
like to have pensions as investors because they leave their money in for
longer than individuals, sending a signal of stability to other investors.

Hedge fund returns have been lackluster for some time. The average fund
lost about 1 percent last year when the stock market was flat, prompting
institutional investors to leave.

Research firm eVestment said investors overall pulled $19.8 billion from
hedge funds in January, marking the biggest monthly outflow since 2009.

Performance at some of the funds with which New York City invested was far
worse. Luxor Capital Group, a long-time favorite with many pensions, lost
an average 18.3 percent a year for the last two years.

New York city's public pension system has five separate pension funds with
individual governing structures. The system has total assets of $154
billion, with about $3 billion invested in hedge funds as of Jan. 31.

NYCERS had $1.7 billion invested in hedge funds at the end of the second
quarter 2015, according to its financial report. That amounted to 2.8
percent of total assets and was the smallest portion of its 'alternative
investments' portfolio, which included $8.1 billion in private equity.

Unaudited data from the city Comptroller's office showed NYCERS' hedge fund
exposure was $1.4 billion as of Jan. 31.

Comptroller Scott Stringer, a trustee, said eliminating hedge funds would a
help NYCERS construct a "responsible portfolio that meets our long-term
investment objectives".

NYCERS paid nearly $40 million in fees to hedge funds during its 2015
financial year, while its hedge fund portfolio returned 3.89 percent over
the year, according to its financial report.

"Hedge funds are charging exorbitant fees for high-risk and opaque
investments," said James.

Public pensions started to invest heavily in hedge funds after the
financial crisis in 2008-2009 to diversify their assets. A CEM Benchmarking
survey of public pensions with a total of $2.4 trillion in assets found 5.2
percent of assets were invested in hedge funds in 2014, compared to 1
percent a decade earlier.

(additional reporting by Svea Herbst; Editing by Nick Zieminski)


Eric D. Schwerin
eschwerin@rosemontseneca.com

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