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Calpers to Boost Allocations to Event-Driven, Macro Funds

Calpers to Boost Allocations to Event-Driven, Macro Hedge Funds
Joseph Dear, chief investment officer of California Public Employees' Retirement System (CALPERS), speaks at the 2012 Milken Institute Global Conference. Photographer: Jonathan Alcorn/Bloomberg

The California Public Employees’ Retirement System plans to boost its allocations to event-driven and global macro hedge funds to help reduce the impact of fluctuations in the stock market.

The biggest U.S. pension fund aims to invest 5 percent of its hedge-fund portfolio with event-driven managers, up from zero in its current weighting, and increase investments in global macro funds to 10 percent from 2 percent, according to a presentation posted on the system’s website.

Calpers, with $254.5 billion in assets, has about 2 percent, or $5 billion, in hedge funds, according to Ed Robertiello, senior portfolio manager of the fund’s Absolute Return Strategies Program. Pensions from California to New York City and Kentucky have said they’re allocating capital to hedge funds to diversify investments and improve returns, as pension costs for retired public employees are straining local governments.

Calpers had about 74 percent of the assets needed to cover projected liabilities as of the fiscal year ended June 30, 2011, according to its 2012 annual financial report. In November, after a series of meetings throughout the year, it will decide on whether its allocation to hedge funds should increase, Robertiello said in a telephone interview last week.

The Absolute Return Strategies Program returned 4.2 percent last year, below the 5.2 percent of its benchmark, according to the presentation.

Average Investment

The pension plans to increase its investments in long-short equity funds to 15 percent of the hedge-fund portfolio, from 11 percent, and increase the allocation to equity market neutral managers to 10 percent from 3 percent, according to the presentation. The pension aims to decrease its allocation to funds of funds, excluding those investing in small hedge funds, by 14 percentage points to 5 percent.

The pension makes an average initial investment of about $100 million, Robertiello said. Calpers will only consider separate accounts within its direct allocations.

Hedge fund managers should be able to show they’re currently trading in a strategy in which they’ve had a “track record of success,” Robertiello said in the interview.

Calpers invests in hedge funds of varying sizes, he said. Calpers made one seed allocation two years ago, Robertiello said. Seed investors give money to managers that are just starting their business and take an equity stake in the fund.

Trailing Stocks

Wilshire Associates Inc. is the consultant for Calpers’ investment committee. The pension fund also uses UBS AG and Pacific Alternative Asset Management Co. as advisers. The process of choosing and investing with a manager can take between six months and one year, Robertiello said. From 2009 through 2012, Calpers dropped 18 hedge funds and added three, according to the presentation.

Hedge funds climbed 1.4 percent last month after rising 3.5 percent in 2012, trailing global stocks. The MSCI All-Country World Index has beaten the $2.25 trillion hedge-fund industry in five of the past seven years.

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