US - The largest pension fund in the US and consulting giant Mercer have disputed a claim made by US senator Chuck Grassley that pension fund losses incurred through hedge fund investments could threaten American workers' retirement security.
Grassley, chairman of the committee on finance, said in a letter to the treasury department: “The potential for significant losses at our nation’s pension funds due to hedge fund investments could put the retirement security of American workers in jeopardy.”
But Jeff Gabrione, senior researcher at Mercer Investment Consulting’s Chicago office, said Grassley’s statement exaggerated the likelihood of hedge funds causing a system-wide breakdown.
“Very few pension plans have more than 10% of plan assets in a single hedge fund strategy, so unless the senator believes there will be multiple hedge fund collapses, plans have limited downside from one hedge fund blow-up,” he said. “Compare that to the potential 25% decline in social security benefits projected, and one needs to reset one’s priorities.”
Clark McKinley, infor-mation officer at the US$220bn California Public Employees’ Retirement System (CalPERS), also said the fund did not share those concerns.
He said CalPERS’ hedge fund programme – Risk Managed Absolute Return Strategies (RMARS) – reflected the importance of risk control in its investments.
“RMARS explicitly is constrained to have no more risk than that of the US equity market, that is, risk no greater than 50% of the risk of the S&P500,” he said.
In his letter, Grassley also claimed hedge funds were permitted to operate “almost completely unfettered” by government oversight or regulation.
A spokesperson at Grassley’s office said the senator was focused on gauging the transparency of hedge funds, adding: “Before discussing any possible legislative response on hedge funds, senator Grassley believes that sunshine is the best disinfectant and improved transparency may go a long way toward fixing the lack of knowledge about hedge fund operations.”
McKinley said CalPERS’ view on hedge funds was that the first line of defence was not regulation, but rather watchfulness by its own programme.
“We aren’t commenting on general hedge fund trends in financial markets, but we agree... that responsibility lies principally with investors to observe the maxim, ‘let the buyer beware’,” he said.
“We have found that hedge funds competing for our business respect our requirements. If they want to deal with us, they will toe the mark, and it’s our job to make sure that they do.”
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