Calpers Pulls Public Employee Pensions Out Of Hedge Funds Calpers says the investment proved to be too complex and not worth the expenses.
NPR logo

Calpers Pulls Public Employee Pensions Out Of Hedge Funds

  • Download
  • <iframe src="https://www.npr.org/player/embed/349036336/349036337" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
Calpers Pulls Public Employee Pensions Out Of Hedge Funds

Calpers Pulls Public Employee Pensions Out Of Hedge Funds

  • Download
  • <iframe src="https://www.npr.org/player/embed/349036336/349036337" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

MELISSA BLOCK, HOST:

The largest public pension plan in America has made an announcement that's likely to echo across the country. CalPERS, the California Public Employees Retirement System says it's getting rid of all its investments in hedge funds. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: CalPERS is actually being compared here to the kid who stood up in the crowd and said, hey the Emperor has no clothes and that's because hedge funds charge very high fees, often 2 percent of the money that you invest, plus 20 percent of profits every single year. CalPERS paid $135 million to hedge funds over the past year alone and the promise of those fees was that they would pay off because brilliant investments would drape pension funds in big returns. But that didn't happen and now CalPERS is getting out of hedge funds.

(SOUNDBITE OF ARCHIVED RECORDING)

TED ELIOPOULOS: Our fiduciary obligation is always to our beneficiaries.

ARNOLD: That's Ted Eliopoulos, the chief investment officer at CalPERS. He spoke on Bloomberg today and he said that CalPERS can invest in the stock market with fees that are just 0.01 percent of the money that they're investing. By comparison many hedge funds are more than 200 times more expensive and they apparently haven't proven themselves to be worth that kind of cost.

(SOUNDBITE OF ARCHIVED RECORDING)

ELIOPOULOS: Costs matter. In the end it's too expensive in a program and we did not see going into the future the ability to reduce those fees to a scale that would make sense for us.

ARNOLD: CalPERS matters too - being the biggest public pension plan in the country, lots of smaller ones follow CalPERS's lead. And in recent years there's been what some call a fad among pension funds, trying to make more money by betting on hedge funds. And some investors say that the penchant funds are doing that because they're falling behind on the money that they need to pay retirees. David Kotok is chief investment officer of Cumberland Advisors.

DAVID KOTOK: We have several states that are less than 50 percent funded, we have a Commonwealth of Puerto Rico which is nearly down to zero.

ARNOLD: Kotok advises pension funds on their investments and he tells them to stay away from hedge funds. He says many just have to raise more revenues if they're going to be able to keep paying retirees what they promised. Chris Arnold, NPR News.

Copyright © 2014 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.