Calpers chief executive Marcie Frost says hedge fund funding remains ‘difficult’

Calpers, the largest pension plan in the US, has reiterated its opposition to hedge funds, saying their fines remain “difficult” even as the fund increases their share of assets to business assets.

Some investors are turning to hedge funds to help them gain the benefit – or the season – from the global financial changes that are likely to occur in the coming year. But Marcie Frost, chief of $ 500bn California Public Employees’ Retirement System, told the Financial Times that Calpers did not want to change.

“We all need to look at money,” he said in an interview. “Everything we give to a foreign manager is money that is not available to make a profit.”

Frost’s comments came a month after Calpers, who has 2m members, approved plans to promote private markets in anticipation of a return on the listed shares. “We think the state markets are a bit hot,” Frost said.

As part of a new four-year plan, Calpers approved plans to increase its investment in private equity by 5 percent to 13 percent and switch to personal debt by 5 percent. At the same time, global economic exposure fell from 50 percent to 42 percent.

Calpers lost $ 4bn in hedge fund holdings in 2014 when cars were under a lot of pressure due to high wages and low jobs. Since then, the hedge fund management fee has dropped from 1.5 percent of assets managed to less than 1.4 percent, according to the HFR data provider. Operating expenses – the share of the fund paid to managers – have dropped from 18 to 16 percent.

Business companies pay a fee equal to the method they use with hedge funds, earn about 2 percent of the managed assets, and 20 percent of the profits they make. However, Calpers has been creating their own financial units directly in order to save money on these sales.

Frost said the biggest risk of using this new approach is time, as well as “connecting your headquarters with appropriate agreements”. But they often see good opportunities in the private markets, especially the private ones.

“We also think that independent companies, because of the control they have over their companies, have the opportunity to work on sustainable issues related to what they sell,” he added.

Frost did not say that he would exceed 13 percent of the private sector “if there were any good trades”, but that would not happen in the next four years.

Some experts warn that money can be confiscated in the event of a disaster. “We are not affected by the financial crisis,” Frost said. “We have enough potential to pay dividends if the market goes down or there is a sharp decline in the markets.”

Another aspect of the reshuffle – adding a 5 percent increase, or rent, to the rest of the history – has sparked accusations that the fund is gambling with taxpayers’ money.

“We hear about different ways people use opportunities to maximize profits. This is not our approach,” he said. “Our approach is to change the various sectors. We think that in addition to this, the right time, [it] exacerbates diversity by investing in low-risk items. ”

The fund does not “run up to 5 percent overnight”, he added. “It will take several years for this to happen. We need to look at all the loans, we need to look at the opportunities that are coming and we need to guide our team in fulfilling this task. ”

Frost pointed out that without a history change, expected returns would have dropped to 6.2 percent, down from a long-term decline of 6.8 percent.

Calpers’ new strategy was approved without a regular business manager, following the sudden departure of Ben Meng, a former employee, in August last year. Frost revealed that the search for a replacement had gone global, and that the delay in Meng’s release had been substantiated.

The CIO’s role was not part of a long-term advocacy fund, he said, something that has been planned. “A tear-jerker is essential,” she said.

Dan Bienvenue took over as chief financial officer shortly after Meng’s departure, with the Calpers hoping to announce a new CIO in the first quarter of next year.

Additional reports by Laurence Fletcher