CalPERS to overhaul hedge fund relationships
US - The $173bn California Public Employees Retirement System (CalPERS) is overhauling its hedge fund relationships asking for more transparency and demanding fees based on longer-term performance.
CalPERS said it would also move toward customized vehicles or managed account instead of co-mingled funds.
Senior global equity portfolio manager Kurt Silberstein said: "Hedge fund managers are expected to exhibit the same sound approach to business management they expect from the companies in which they invest."
CalPERS is asking all managers in their US$5.9bn hedge fund portfolio for "the highest and most timely disclosure of information possible," the fund said in a release.
Officials are also asking for fees based on long-term, rather than short-term, performance.
CalPERS said: "The present model provides the possibility of a hedge fund manager realizing a 20% performance fee at the end of a bonanza year. If the fund suffers a significant decline the next year, the manager could still have a large net gain at the end of the two years, but the investor may break even or even lose money."
CalPERS' officials believe fees should be based on "mechanisms such as delayed realizations and clawbacks" that better align the long-term interests of investors and managers.
Officials at CalPERS believe the hedge fund community has not evolved to properly serve the institutional investors that have now become their largest clients, as opposed to wealthy individuals.
Silberstein added: "This restructuring effort is about building more stable, long-term relationships that also benefit hedge fund managers. It's in our interest to get the best possible return on investment for our members, but it's in the managers' interest to be more closely aligned with CalPERS in building stronger, more stable relationships."
Senior global equity portfolio manager Kurt Silberstein said: "Hedge fund managers are expected to exhibit the same sound approach to business management they expect from the companies in which they invest."
CalPERS is asking all managers in their US$5.9bn hedge fund portfolio for "the highest and most timely disclosure of information possible," the fund said in a release.
Officials are also asking for fees based on long-term, rather than short-term, performance.
CalPERS said: "The present model provides the possibility of a hedge fund manager realizing a 20% performance fee at the end of a bonanza year. If the fund suffers a significant decline the next year, the manager could still have a large net gain at the end of the two years, but the investor may break even or even lose money."
CalPERS' officials believe fees should be based on "mechanisms such as delayed realizations and clawbacks" that better align the long-term interests of investors and managers.
Officials at CalPERS believe the hedge fund community has not evolved to properly serve the institutional investors that have now become their largest clients, as opposed to wealthy individuals.
Silberstein added: "This restructuring effort is about building more stable, long-term relationships that also benefit hedge fund managers. It's in our interest to get the best possible return on investment for our members, but it's in the managers' interest to be more closely aligned with CalPERS in building stronger, more stable relationships."
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