CalPERS rethink puts spotlight on hedge fund infrastructures

07 Jan, 2015

Was CalPERS’ decision merely a blip, or a sign of things to come for the hedge fund industry?

After years of inexorable institutionalisation, for me September’s revelation that the huge and hugely influential California Public Employees’ Retirement System is pulling its entire $4 billion hedge fund portfolio – citing the funds’ complexity and cost – was profoundly significant.

And CalPERS is not alone. Across the States, a string of public pension funds are now reportedly re-examining their existing or planned hedge fund investments.

We’re seeing similar issues in Europe. In September it emerged that Dutch pension fund PMT would close its €1 billion hedge fund portfolio, blaming high investment fees.

In the UK, the Railways Pension Scheme and BT Pension Scheme are said to be reassessing their hedge fund investments, while the chairman of the London Pension Fund Authority said hedge funds’ high fees are no longer justifiable.

I can’t say I’m surprised by the backlash. Investors have been grumbling about hedge funds’ traditional “2 and 20” fee model for years. Recent performance – returns of 3.47% through October, compared to 5.18% for the MSCI World Index, according to Eurekahedge – has added to the pressure.

It’s not all doom and gloom. The industry’s risk-adjusted return track record means many institutional investors are still keen to allocate to the sector. Indeed, a new State Street survey of pension funds around the world found 29% plan to increase their exposure to single manager hedge funds over the next three years. But given the headlines and heightened scrutiny, what’s clear is that individual hedge funds will have to battle ever harder if they’re to continue attracting institutional money.

So what can you do?

Use a stable and validated technology provider: one with sophisticated solutions that can improve cost efficiencies, effectively monitor and measure market and operational risks, and help deliver enhanced investment returns. As a long-time software partner for many hedge funds, our message has always been that firms need proper operational systems and processes if they’re to pass muster with their increasingly demanding and value-conscious clients and prospects.


By Paul Bebber, Regional Sales Manager, Advent Software

Paul Bebber joined Advent in 2013 as Regional Sales Manager. He is responsible for growing and developing Advent within the institutional asset management marketplace.