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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.

White House Nominates Heath Tarbert for CFTC Chairman

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The White House announced Heath P. Tarbert will be nominated to serve as Commissioner and Chairman of the Commodity Futures Trading Commission (CFTC). Tarbert currently serves as Assistant Secretary for International Markets at the U.S. Treasury Department. Before joining the U.S. Treasury, Tarbert was a Partner at law firm Allen & Overy. Tarbert was confirmed by the U.S. Senate for his current Treasury post at 87 (yes) to 8 (no).

Upon Senate confirmation, Tarbert’s CFTC term would start on April 14, 2019 and last for five years. Tarbert is taking over from J. Christopher Giancarlo whose term ends in April 2019. Tarbert will need a U.S. Senate confirmation to take the head CFTC post.

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KIA Could Sell Stake in North Sea Energy Business

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The Kuwait Investment Authority (KIA), through its unit Wren House Investment Management, is nearing a deal to sell a 40% stake in its North Sea energy business to JPMorgan Asset Management. In July 2018, KIA closed on a deal to acquire oil and gas pipeline firm North Sea Midstream Partners from ArcLight Capital.

More details to follow –

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Pensioenfonds PGB Hires BMO Global for Equity Protection Strategy

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Pensioenfonds PGB is a Dutch multi-sector pension fund. PGB awarded a mandate to implement a protection strategy for its €12 billion equity portfolio to BMO Global Asset Management. PGB is a €26.5 billion fund. PGB has been using BMO Global’s responsible engagement overlay since 2017.

The Chief Investment Officer of PGB is Harold Clijsen.

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