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Calpers Missed a $1 Billion Payday by Scrapping Market Hedge

  • Fund exited in late January just weeks before stocks fell
  • It kept a second ‘tail-risk’ investment long enough to cash in
The California Public Employees’ Retirement System (Calpers) office in Sacramento, California.
The California Public Employees’ Retirement System (Calpers) office in Sacramento, California.Photographer: Ken James/Bloomberg
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Three years ago, America’s largest pension fund made an unusual investment. It bought so-called tail-risk protection, a kind of insurance against financial catastrophe. In a market meltdown like the one sparked by the coronavirus, the strategy promised a massive payout -- more than $1 billion.

If only the California Public Employees Retirement System had stuck with the plan. Instead, Calpers, as the fund is known, removed one of its two hedges against a bear market just weeks before the viral outbreak sent stocks reeling, according to people familiar with its decision.