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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.

Concerns Raised at Potential BlackRock Takeover of CalPERS’ Private Equity

The California Public Employees’ Retirement System (CalPERS) has been analyzing options on what to do with its massive US$ 26 billion private equity program. The pension system has embraced the mantra of reducing cost, reducing complexity and reducing risk, the hallmark of its program called “INVO 2020”. CalPERS also wants less, but more strategic relationships with external money managers. At one point, CalPERS was contemplating increasing its direct investment staff to model Canadian pension funds such as Canada Pension Plan Investment Board (CPPIB), OMERS and the Ontario Teachers’ Pension plan. The pendulum has begun to swing the other way as reported earlier by SWFI research staff.

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CDP Signs €1.7 Billion Infrastructure Loan Agreement with Atlantia Group

Cassa depositi e prestiti S.p.A. (CDP) and Atlantia Group’s Autostrade per l’Italia (ASPI) have signed a €1.7 billion loan contract dedicated to upgrading motorways in Italy under concession to ASPI. €1.1 billion will come in the form of a term loan with a 10-year tenure, with the remaining €600 million wrapped up in a five-year revolving loan.

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Sovereign Funds Commit to Integrating Climate-Related Risks at One Planet Summit

Representatives from a number of sovereign wealth funds who collectively govern over US$ 2 trillion in assets came together at the One Planet Summit at the Élysée Palace in Paris in order to discuss what public asset owners can do to incorporate climate change-related risks and opportunities into investment considerations.

The newly formed committee – called the One Planet Sovereign Wealth Fund Working Group – includes as its founding members the Abu Dhabi Investment Authority (ADIA), Kuwait Investment Authority (KIA), Qatar Investment Authority (QIA), Norges Bank Investment Management (manager of Norway’s Government Pension Fund Global), Saudi Arabia’s Public Investment Fund (PIF), and the New Zealand Superannuation Fund.

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