Pension funds in 2013 continued to get clipped by their “hedges.”
Retirement funds, including those for firefighters, cops and teachers, poured $80 billion into hedge funds through Oct. 31, only to see the expensive investments trail the overall equity market for the fourth straight year.
While the pension funds jumped into the hedges to help rebuild their portfolios, especially after they were shocked by the nearly 40 percent drop in stocks in 2008, it hasn’t been such a smart move.
Take New York City, whose retirement system began investing in hedge funds a little more than two years ago. By September, three out of five city retirement pension plans had put $2.85 billion into hedge funds, or 2 percent of the overall system’s $139.25 billion in assets. As hedgie investment ramped up, the plans’ US equity allocation dropped 2.6 percentage points.
They would have done better staying in stocks. For the year ended June 30, the city’s pensions gained 12.1 percent, compared with 18.6 percent for the S&P 500.
The city’s equity portfolio outperformed the S&P over that span, gaining 22.6 percent, but the five hedge funds added during fiscal 2013 gained only 8.8 percent.
Three of the city’s latest hedge fund investments — Perry Capital, Pharo Management and Carlson Capital — have not outdone the S&P since then, either.
The S&P is up 29.1 percent through Friday, while the average hedge fund was up only 7.3 percent through Nov. 30, according to industry data.