Policy debate follows announcement of withdrawal of investments from 24 hedge funds and six funds of funds
CalPERS, the largest public pension plan in the US, has announced it will rethink its policies regarding derivatives, housing finance and credit rating agencies as part of a plan to focus on risk, governance and transparency in financial markets.
The pension fund says it has prioritized issues that helped lead to the global financial crash of 2008 and continue to create risks to global financial markets, and will seek to address them with a revision of what it calls its Financial Market Principles.
‘Our advocacy work needs to be focused and relevant to our current market environment,’ says Ted Eliopoulos, CalPERS’ interim chief investment officer. ‘Refreshing our Financial Market Principles will allow the system to apply its resources more efficiently and be more impactful [regarding] the issues we engage on.’
As part of its principles, CalPERS pledges to advocate for investor rights and the independence of regulators, and to press regulators to address ‘issues that give rise to overall market risks that threaten global markets and foster action that mitigates those risks.’
The statement comes days after the pension plan said on September 15 that it will exit the investments in 24 hedge funds and six funds of funds it made as part of its Absolute Return Strategies (ARS) Program, which focused on hedge fund investing. In all, it will pull out about $4 bn from hedge funds.
‘We are always examining the portfolio to ensure we are efficiently and cost-effectively achieving our risk-adjusted return goals,’ Eliopoulos says in the September 15 statement. ‘Hedge funds are certainly a viable strategy for some but, [ultimately], when judged against their complexity, cost and lack of ability to scale at CalPERS’ size, the ARS program is no longer warranted.’
CalPERS says the withdrawal from hedge funds is part of a larger restructuring to ensure the pension fund is less susceptible to sharp market declines in the future.
