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More Public Pensions Dropping Hedge Funds

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A growing number of public institutional investors are questioning the value-add of hedge funds. Frustrated by fees, lack of transparency and more importantly, recent lackluster returns versus lower-cost vehicles, pension plans are trying to rationalize the need to have them included in their portfolios. Even a number of sovereign wealth funds have voiced concerns about the fee structures and lack of standards in hedge funds. To alleviate concerns and foster greater understanding about hedge funds, the Hedge Fund Standards Board established a mutual observer relationship with IFSWF, a former IMF-backed group on sovereign funds.

The California Public Employees’ Retirement System (CalPERS) was one of the first major U.S. public pensions to axe its hedge fund program. Will more pensions follow? The board of New York City Employees’ Retirement System voted on April 14, 2016 to get rid of its US$ 1.5 billion hedge fund program. The fund voted to end future allocations to hedge funds and “liquidate NYCERS hedge fund investments as soon as practicable in an orderly and prudent manner.”

Rationale

In calendar year 2015, NYCERS’s hedge fund portfolio lost 1.88%, losing to both the S&P 500 Index and Barclays U.S. Aggregate Bond Index. Hedge funds losing mandates from the NY pension would be Brevan Howard Asset Management, Fir Tree Partners, Brigade Capital Management, Luxor Capital Group, Perry Capital and D.E. Shaw & Co. In the fund’s 2015 fiscal year, they paid approximately US$ 40 million in fees to hedge funds. At this point, hedge funds will still manage money for New York City’s pensions for firefighters and police officers.

NYCERS invested with hedge funds “with the belief that these would add value to the performance – both by increased returns and decreasing risk by providing downside protection,” New York City Public Advocate Tish James said in a statement. “I have seen little evidence of either.”

Even the name-brand hedge funds, darlings of many pensions, took a hit in the first quarter of 2016. Hedge funds such as Citadel and Millennium Management were down 6% and 4.2%, respectively, to March 30, 2016. and March 31, 2016, from the start of the year.

FIRRMA Bill is a Big Deal for Foreign Asset Owners

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The United States Treasury is analyzing options on further restricting investments into “sensitive” sectors, such as technology and defense, in the United States from Chinese state-owned capital. The U.S. Commerce Department, under the export control regime, banned U.S. companies from selling parts to ZTE Corporation, a Chinese telecommunications manufacturer, for seven years. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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AIMCo Posts 10.4% Return in 2017

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The Alberta Investment Management Corporation (AIMCo) posted its performance for the 12-month period trailing December 31, 2017, which saw its overall assets grow by 8.4% – or C$ 8.0 billion (US$ 6.1 billion) – to C$ 103.7 billion (US$ 82.3 billion). This represents returns net-of-fees on its C$ 88.2 billion (US$ 70.3 billion) worth of balanced fund investments in 2017 of 10.4%, against a 9.1% custom benchmark. Established in 2008, AIMCo represents the financial well-being of 32 pension, endowment, government, and specialty funds in the Canadian province of Alberta. This includes the Albert Heritage Fund.

[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Mubadala Real Estate Targets JV Developers, Eyeing Local REIT Launch

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Mubadala Investment Company’s property arm is preparing to launch a local real estate investment trust (REIT) by 2020, and is currently in talks with several developers for international joint ventures on a plot-by-plot basis that are expected to be finalized in 2018, according to Ali Eid Al Mheiri, executive director of Mubadala Real Estate and Infrastructure. Ali Eid Al Mheiri is also Vice Chairman of ALDAR Properties PJSC and Chairman of Abu Dhabi Finance Company PJSC. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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