Friday, October 14, 2016
Madness: NY State pension fund tell funds they must earn 10% per annum or they're fired. Good luck with that. Another case of bureaucrats telling people who actually do the work what to do.Have we become so unmoored from the marketplace?
New York is telling hedge funds to up their game — or they’re toast.
The state’s $178.6 billion pension fund, the third-largest in the US, has privately told hedge funds in recent weeks that they must earn a minimum 10 percent annual return — or they’re going to get the boot, The Post has learned.
The state pension fund has $6 billion invested with hedge funds as of March 31, including Ray Dalio’s Bridgewater Associates, John Paulson’s Paulson & Co., and Jeffrey Ubben’s ValueAct Capital, according to the fund’s annual financial report — and none returned 10 percent.
The state pension’s basket of alternative investments, as the hedge funds are classified, lost 4.78 percent in the year ended March 31, not including fees. While that was better than the 8.19 percent loss posted by a hedge fund benchmark index, the pension fund would have done better had it put the 46 billion into an S&P 500 Index fund.
The S&P 500 fell less than 1 percent over the same period.
The salvo fired by Vicki Fuller, the pension’s chief investment officer, is the latest piece of bad news for hedge funds, which have come under attack for their poor performance and high fees.
Hedge funds typically charge investors as much as 2 percent in management fees and 20 percent of any gains.
The pricey funds have improved their performance in 2016, posting an average gain of 4.2 percent though Sept. 30, according to data compiled by HFR, but that still trails the new benchmark return being pressed by Fuller.
The S&P 500 was up 7.7 percent over the same period.
At a Los Angeles conference in May, Fuller called hedge fund fees “unfair” — but stopped short at that time of saying she would pull the pension’s money from its 26 managers.
In June, Fuller sharpened her attack, arguing in a TV interview that hedge funds should return a set amount before charging performance fees. Through her cajoling, Fuller has managed to reduce hedge funds’ management and incentive fees by more than a third from its fiscal 2015 year — to $150.1 million.
Fuller now appears to be focusing her attack on returns, a source said.
It could not be learned if New York would totally exit alternative investments if no hedge fund returned 10 percent in the upcoming year. Fuller’s edict is unofficial.
With just over 1 million retirees cashing pension checks from the state’s pension system, that amounts to roughly $150 per person a year.
A spokeswoman for the New York pension didn’t immediately return a call seeking comment.