The Morning Brief: NYC Pension Dumps Hedge Funds

Hedge funds received several votes of no confidence this week that could have far-reaching ramifications for the industry.

First of all, the New York City Employees Retirement System (NYCERS) has decided to end its hedge fund investment program. It voted to stop major new investments and to liquidate its current hedge fund portfolio “as soon as practicable in an orderly and prudent manner,” Reuters reports.

According to its June 30, 2015 report, NYCERS had $1.5 billion in hedge fund investments. In the most recent fiscal year, its hedge fund portfolio returned 3.89 percent. Keep in mind that several of the funds that it had investments in lost money in 2015, including New York-based Perry Capital’s eponymous fund, New York-based Brigade Capital Management’s Brigade Leveraged Capital Structure and London-based Brevan Howard Asset Management’s flagship fund. In fact, Brigade lost more than 11 percent last year after posting low- to mid-single-digit gains in each of the previous four years. The Pharo Macro Fund, managed by London-based Pharo Management, was up 3.6 percent last year and is down about 2 percent in the first two months of this year.

Little surprise, American Federation of Teachers President Randi Weingarten applauded the pension fund’s move. “Hedge funds are becoming a bad bet for working families,” she said in a statement. “A recent AFT report found that public employees in New York City and 10 other pension funds would have been better off if they had never invested in hedge funds. Not only did hedge funds underperform compared with a standard index fund, pension funds paid an average of $81 million in management fees in 2015 alone.”

She also railed at the notion that many hedge fund managers are using their profits to “launch political attacks on public pensions, public services, public schools and the mechanisms that give working people a shot at success.”



Separately, investors are losing their patience with the mediocre returns being posted by legendary investor Paul Tudor Jones II. According to Bloomberg, investors have requested to redeem more than $1 billion from Tudor Investment Corp., the Greenwich, Connecticut macro firm founded by Jones in 1980. His Tudor BVI Global Fund fell 2.8 percent in the first quarter of this year after posting low single-digit returns in the two previous years and single-digit returns in three of the four previous years. Bloomberg also reported that Tudor deputy chief operating officer Richard Puma is leaving the firm.


In a different measurement of hedge fund sentiment, SS&C Technologies reported that hedge fund flows declined by 0.95 percent in April. This compares with a 0.75 percent increase in March. It notes that in April 2015, flows declined by 1.20 percent. “Year-over-year comparison was marked by relatively lower outflows this past month, the ninth consecutive month of lower outflows on a year-over-year basis,” states Bill Stone, chairman and chief executive officer of SS&C Technologies, in a press release. “This indicates investors have remained committed to their hedge fund allocations during a period of generally increased market volatility.”