Fees are a sensitive topic with North American pension funds and California Public Employees’ Retirement System (CalPERS) is no exception. Early last year the pension fund surprised a lot of people when it admitted that it didn’t know how much it was paying some of its Wall Street managers, it drew further controversy last November when it was revealed it had paid $3.4 billion in private equity bonuses since 1990.
Desperate for a bit of good PR, America’s biggest pension fund was keen to trumpet the “savings” in fees it had made following its hedge fund cull instigated in mid-2014. According to its annual report issued last week, the $301 billion fund cut costs by $217 million in the 12 months to the end of June thanks in part to its high-profile demolition of its hedge fund program and “its diligent work to negotiate more favorable terms for CalPERS with our external managers.”
But not everyone was willing to give CalPERs — which recorded a lower-than-expected 12-month return of 2.4% — the chance to pat itself on the back. Fortune’s Dan Primack for one, had two very legitimate points to raise, which he outlined as follows:
(1) CalPERS hadn’t actually eliminated its entire hedge fund program yet. In fact, it still had $500 million of exposure through the end of last October (four months after the CAFR period ended). (2) More importantly, CalPERS does not seem to have calculated if the savings from liquidated hedge fund positions are more or less than CalPERS would have earned from maintaining those positions. I’m not claiming to know ― I just find it strange that the pension would congratulate itself for savings that might actually be losses in disguise.
You can fool all of the people, some of the time…
Photo: GotCredit