NYC Fires All of Their Hedge Fund Managers, Cites Underperformance and Exorbitant Fees

As a teenager I interned at the NYC comptrollers office. During my career managing money, I’ve done business with pension funds and a relative of mine was the administrator for his union, whose job it was to oversee investments, many of which were tossed into fucked up hedge funds. I recall looking at his union’s investment performance, circa 2002, and it was dreadful-20-30% declines across the board.

When I was at the comptrollers office, they were very conservative, only investing the people’s money in bond fund and super conservative  mutual funds.

Alas, 2008 hit them like a bag of bricks and they got scared. They ran to the hedge fund industry, who, incidentally, doesn’t hedge anymore, and invested billions–only to find out later that they were all drug addled morons.

NYC joins California in revoking their commitment to the lackluster hedge fund industry. This is the beginning of this trend, not the end.

The move by the fund, which had $51.2 billion in assets as of Jan. 31, follows a similar actions by the California Public Employees’ Retirement System (Calpers), the nation’s largest public pension fund, and public pensions in Illinois.
“Hedges have underperformed, costing us millions,” New York City’s Public Advocate Letitia James told board members in prepared remarks. “Let them sell their summer homes and jets, and return those fees to their investors.”
Luxor Capital Group, a long-time favorite with many pensions, lost an average 18.3 percent a year for the last two years.
New York city’s public pension system has five separate pension funds with individual governing structures. The system has total assets of $154 billion, with about $3 billion invested in hedge funds as of Jan. 31.
NYCERS had $1.7 billion invested in hedge funds at the end of the second quarter 2015, according to its financial report. That amounted to 2.8 percent of total assets and was the smallest portion of its ‘alternative investments’ portfolio, which included $8.1 billion in private equity.
Unaudited data from the city Comptroller’s office showed NYCERS’ hedge fund exposure was $1.4 billion as of Jan. 31.
Comptroller Scott Stringer, a trustee, said eliminating hedge funds would a help NYCERS construct a “responsible portfolio that meets our long-term investment objectives”.
NYCERS paid nearly $40 million in fees to hedge funds during its 2015 financial year, while its hedge fund portfolio returned 3.89 percent over the year, according to its financial report.
“Hedge funds are charging exorbitant fees for high-risk and opaque investments,” said James.
Public pensions started to invest heavily in hedge funds after the financial crisis in 2008-2009 to diversify their assets. A CEM Benchmarking survey of public pensions with a total of $2.4 trillion in assets found 5.2 percent of assets were invested in hedge funds in 2014, compared to 1 percent a decade earlier.

Poor hedge funders. How will they afford their $150 mill beach homes without tax payers dollars to slush around?