Hedge Fund Decision Not About One-Year Performance
January 15, 2016
CalPERS decided to end its hedge fund program, Absolute Return Strategies (ARS), in September of 2014. The matter was widely covered in the media and drew considerable attention at the time. As we indicated very clearly at that time, program performance was not a key driver of the decision. In fact, ARS historical performance, whether good or bad, didn't move the performance needle at the total fund level in any meaningful way.
CalPERS further explained that the reason we made the decision to shut down ARS was primarily due to the program's cost, complexity, and risk. It also was a matter of scale, as increasing the size of the program in a manner that would make it effective for a fund of our size was not feasible.
We stand by our decision, and the reasons we eliminated the program remain extant today. Any comparison of one year of hypothetical performance of the program, to the actual ongoing fee savings is not only speculative but also seems to compare apples and oranges, so to speak. Fee savings are a benefit CalPERS gets to enjoy going forward, regardless of the performance of our assets.
CalPERS is a long-term investor; We invest with a 30- to 50-year horizon. We find that any one-year performance figure, in any asset class, is not a meaningful measure of the overall health of our fund.