Hedge funds drained billions from state pension plans: reports
Funds enriched managers but failed to hedge losses, AFT, Utah reports say
Matt Topley at Fortis Partners says questions about the high expenses and disappointing returns from hedge funds and other return investments have been piling up. Two recent reports challenging the cost and benefits:
- American Federation of Teachers, in a report called "All That Glitters Is Not Gold," reviews 11 state pension plans (including New Jersey's) and finds hedge funds generally failed to protect state assets against market downturns (as hedge fund advocates like Govs. Corzine and Christie promised), sucked up 57 cents in fees for every $1 in profit, and have hit plans with billions of dollars in opportunity costs compared to other more profitable investments. AFT also notes that key data is missing from New Jersey's hedge fund performance records. Read the AFT report here.
- State auditors in Utah warn that state's pension system is dangerously over-invested in "alternative assets" (hedge funds, private equity, real estate,) and that hedge funds and other alternatives have cost the state more than $1 billion due to lower returns compared to other investments, from 2004-13. The auditors, who work for the state legislature, urge the state to consider divesting alternative assets. Read the Utah report here.
See also this Wharton School report, "Has the Hedge Fund Industry Lost Its Way?" (Not really, the profs tell Knowledge@Wharton)