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It fascinates me that pension funds (which are really trust funds due to partially to the deferred compensation aspect) have the ability to invest in such risky and expensive vehicles such as hedge funds. With my child's trust account I have a fiduciary responsibility via the Prudent Investment Act to secure investments that best preserve/enhance the assets of the trust... and if I fail to do so I can be liable. And while as a fiduciary I am permitted to delegate investment management and other functions to third parties... would I be a prudent fiduciary if I delegated that aspect to hedge funds with little transparency. But, pension funds can and do delegate that aspect to hedge funds... sometimes with off-shore hedge funds with likely even less transparency.
"And as long as some hedge funds perform well (and they seemed to be doing better than the reported Rentech numbers), then most LPs would be happy to just suffer from amnesia and maintain status quo."
Yeah, I am afraid you are right since I have also atended those big LP meetings and very few people want to rock the boat. But if LPs forget the lessons of 2008, they're in for a rude awakening. Hedge funds are performing well because corporate bond spreads have come in and global stock markets are rallying since March. Basically, it's all about beta. Going forward, the weak will die and only the best will survive.
The performance of the stock bond and just about everything else (except maybe US and UK real estate, and even then we would have to wait a few months to see if the green shoots spied by CNBC would turn into weeds or a forest) would ironivally make it harder for the LPs to change hedge funds and PE funds' terms. I worked in the industry for 2 decades and understand how most pension fund managers think (and I am not talking about LPs with a few billions). Most , even the larger SWFs, are just happy not to rock the boat. The few who are outspoken often manage smaller pension funds and find little support at LP meetings. The most controversial LP meeting I have come across was TPG's last year, and nothing came out of that - still 2/20, still $20b funds, still losing money. Fact is, if the Harvards and Yales are happy with 2/20 and sometimes with no clawbacks, the large numbers of less influenctial LPs will not have the ability or will to keep fighting this battle. And as long as some hedge funds perform well (and they seemed to be doing better than the reported Rentech numbers), then most LPs would be happy to just suffer from amnesia and maintain status quo.
It's about time the pension fund managers started to work for a living. Investing blind in things they don't understand, or want to, if returns are good or bad is idiotic and irresponsible. Makes me think nothing was learned from Orange County. I fear for my academic family and their dependence on fund managers having a modicum of intelligence to manage their pensions...
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