Excerpts from the article are below:
Overall, industry data and observers do not point to a large pullback of public pensions from the hedge fund space. “I think the CalPERS situation is relatively unique. They have over $300 billion in capital, and their hedge fund allocation is around 1.5%. Reducing it to 1% … these are not percentages that move the needle for a fund of that size. I think I can understand why it’s more work than it’s worth,” says Thomas Kreitler, a partner at fund placement specialist Eaton Partners.
And for every pension reducing its hedge fund allocation, there is another ramping up its commitments, says Kreitler.
The market circumstances also make it harder for public funds to maintain hedge fund allocations, says Kreitler. The upside of hedge funds comes when the markets are volatile, sideways or declining, he adds: “We are now six years away from fall of 2008, and I think at this point given what public markets have done it is difficult for folks to rationalize [their hedge fund allocations].”
One option for pension giants such as CalPERS is to take the hedge fund management in-house, says Kreitler. “They certainly have the resources, I would think, to develop a lot of these strategies internally,” he adds. “Given fee pressures it is a concern that they can’t get as much as scale with individual hedge funds as maybe they could do internally.”
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