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Calpers, Nation’s Biggest Pension Fund, to End Hedge Fund Investments
"The California Public Employees’ Retirement System, the nation’s largest pension fund, will eliminate all of its hedge fund investments over the next year on concerns that investments are too complicated and expensive."
This is no mystery. Investment Banks such as Goldman Sachs and Co. marketed such tripe including CDOs to Pension funds all over the country. They wined and dined people and explained to them the merits of diworsfication. That's why Calpers and others ended up holding crap.
Like Goldman Sachs testified to Congress, their obligation is only to offer a security to a client at a price that is properly disclosed. They have no obligation to not sell crap or to bet against that crap. If they are holding their own crap, they can go to AIG and buy CDS against that crap and then force government to bail them out. Only gain, no pain.
What a job! Only BIG institutions can put folks like GS out of a job. They are NOT needed for liquidity or capitalism. Lenders used to lend money to borrowers. Then lenders simply sold loans to Goldman Sachs. Goldman Sachs insisted this loans were subprime so they carried higher interest rates. They then get those loans certified AAA. Then they bundle them into CDOs and sell them to Calpers who has no clue what it is buying, but the marketing powerpoint from GS says it will improve risk/reward ratio of their portfolio. What not to like?
If we had a legitimate investment bank, we wouldn't need so many of them. As long as we have so many of them "dummies" like Calpers will also be around. Let's be fair. Everyone assumes folks like GS are "smart" people.
All said and done, this is what gets my goat. One hedge fund manager is "surprised" Calpers is "doing this". Don't they know everyone is expecting a "major correction"? Really? So WTF should Calpers not simply short the markets. Why invest is this guy's hedge fund. Calpers are dummies? What do we call the hedge fund manager and the person who wrote that article? Stupid, corrupt, both? Or smart?
@ Ted - My fees were pretty close to that, but my return wasn't all that good. Maybe I should have listened to you more...
Regarding Calpers, the $135m in fees was just with respect to the hedge fund return of 7.1%. The article does not really give much info re Calpers overall. I wonder what that $135m represents as an ER with respect to the hedge funds.
Sorry the $ amount of fees is relative to the asset base. So I think that's less relevant. At least they got 7.1 return. People here have already lamented about hussman generating $10M in fees (well $3.3M actually since 66% goes to charity) and generating negative returns.
Be happy you realized not to invest in hedge funds Be happy at least you didn't get negative returns for your shareholders.
I don't know why we are debating $135M or $235M. Whatever we could gain from the original article posted we have already.
Don't see why Calpers needs a hedge fund. Their elite money managers should be able do their own hedging. To be fair - hedge funds have good and bad years just like other investors, so wouldn't read too much into the 7.1%.
Fees/return aren't the only considerations for investors. Another small matter's risk (also hardest to quantify). By hedging, Calpers was seeking to reduce overall risk relative to growth of capital. Apparently didn't feel they were getting their money's worth. ---
Add/edit: Does anyone seriously think any category of "alternative investments" (as normally envisioned) is going to out-pace a runaway bull stock market like the one we've enjoyed for the past 5.5 years? Buffett: "It's only when the tide goes out that you learn who's been swimming naked."
I understand the standard hedge fund fee to be 2% + 20% of the gains.Unless you hire the right firm the costs will kill you over time. For the managers 2 and 20 is like heads we win tales we win a lot. Not so good for the customers.
Yep, on not so good for the customer as the standard for hedge funds is 2% for fees and 20% on the gains. That is why I think some investors are looking at alternative mutual funds and although they have high fees as far as mutual funds go they are by far a lot less pricey than the standard fees hedge funds charge to accredited investors. And, even at this there will be those that balk at the higher mutual fund fee structure for the exposure to the hedge fund type strategies that these types of mutual funds offer.
I look for more and more hedge funds to start to offer their services through mutual fund wrappers as more and more accredited investors move away from the traditional hedge fund with its 2% fee and 20% on gains. This is a lot to be paying by my thinking.
Comments
Like Goldman Sachs testified to Congress, their obligation is only to offer a security to a client at a price that is properly disclosed. They have no obligation to not sell crap or to bet against that crap. If they are holding their own crap, they can go to AIG and buy CDS against that crap and then force government to bail them out. Only gain, no pain.
What a job! Only BIG institutions can put folks like GS out of a job. They are NOT needed for liquidity or capitalism. Lenders used to lend money to borrowers. Then lenders simply sold loans to Goldman Sachs. Goldman Sachs insisted this loans were subprime so they carried higher interest rates. They then get those loans certified AAA. Then they bundle them into CDOs and sell them to Calpers who has no clue what it is buying, but the marketing powerpoint from GS says it will improve risk/reward ratio of their portfolio. What not to like?
If we had a legitimate investment bank, we wouldn't need so many of them. As long as we have so many of them "dummies" like Calpers will also be around. Let's be fair. Everyone assumes folks like GS are "smart" people.
All said and done, this is what gets my goat. One hedge fund manager is "surprised" Calpers is "doing this". Don't they know everyone is expecting a "major correction"? Really? So WTF should Calpers not simply short the markets. Why invest is this guy's hedge fund. Calpers are dummies? What do we call the hedge fund manager and the person who wrote that article? Stupid, corrupt, both? Or smart?
Regards,
Ted
http://www.bloomberg.com/news/print/2014-09-16/calpers-pulls-all-4-billion-in-hedge-funds-citing-costs.html
Regarding Calpers, the $135m in fees was just with respect to the hedge fund return of 7.1%. The article does not really give much info re Calpers overall. I wonder what that $135m represents as an ER with respect to the hedge funds.
Be happy you realized not to invest in hedge funds
Be happy at least you didn't get negative returns for your shareholders.
I don't know why we are debating $135M or $235M. Whatever we could gain from the original article posted we have already.
Fees/return aren't the only considerations for investors. Another small matter's risk (also hardest to quantify). By hedging, Calpers was seeking to reduce overall risk relative to growth of capital. Apparently didn't feel they were getting their money's worth.
---
Add/edit: Does anyone seriously think any category of "alternative investments" (as normally envisioned) is going to out-pace a runaway bull stock market like the one we've enjoyed for the past 5.5 years? Buffett: "It's only when the tide goes out that you learn who's been swimming naked."
Yep, on not so good for the customer as the standard for hedge funds is 2% for fees and 20% on the gains. That is why I think some investors are looking at alternative mutual funds and although they have high fees as far as mutual funds go they are by far a lot less pricey than the standard fees hedge funds charge to accredited investors. And, even at this there will be those that balk at the higher mutual fund fee structure for the exposure to the hedge fund type strategies that these types of mutual funds offer.
I look for more and more hedge funds to start to offer their services through mutual fund wrappers as more and more accredited investors move away from the traditional hedge fund with its 2% fee and 20% on gains. This is a lot to be paying by my thinking.
Old_Skeet