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First CalPERS, Now Texas Teachers Cut Hedge Fund Exposure

Tyler Durden's picture




 

Earlier in the week, perhaps reflecting on the fact that 90% of hedge fund managers are overpaid, California Public Employers Retirement System (CalPERS) announced it would cut its entire exposure to hedge funds. It seems the decision is becoming more popular, as Bloomberg reports, the Teacher Retirement System of Texas, the sixth-largest U.S. public pension, has decided to cut its hedge fund allocation by 1 percentage point to only 8% of the fund. The decision enables the fund to reduce equity exposure and raise fixed income exposure.

 

As Bloomberg reports,

Texas will reduce hedge funds to 8 percent of the pension from 9 percent, according to board documents.

The board of the $126 billion Texas system approved the change today following an asset allocation study, Howard Goldman, a spokesman, said by e-mail.

...

Besides reducing its bet on hedge funds, the Texas pension lowered the portion of assets it gives to equities by 4 percentage points and to fixed-income securities by 2 percentage points, while adding 5 percentage points each to risk parity and private markets, according to board documents. Risk parity is a strategy for investing based on allocation of risk and private equity and real assets.

...

Texas Teachers’ has an unfunded liability of about $28.9 billion, meaning it has 80.8 percent of the assets needed to fund future payments to retirees.

*  *  *

Hardly surprising, as we noted previously...

Performance has not been great...

 

as Hedge funds have become nothing but beta...

 

*  *  *

But perhaps the most notable fact from the Texas pension fund's statement is its great rotation from stocks to bonds...

 

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Fri, 09/19/2014 - 18:56 | 5236178 LawsofPhysics
LawsofPhysics's picture

Imagine that.  Rates will be going down for a while.

Anyone see the Japanese ten year lately?  Where's that bitch hanging out these days?

Fucking awesome.

Fri, 09/19/2014 - 19:22 | 5236253 babylon15
babylon15's picture

Pretty sure Japan is going to bring down the entire global financial system.  Debt up, babies down.  Big bada boom.

Fri, 09/19/2014 - 20:28 | 5236419 COSMOS
COSMOS's picture

Your pension funds made a bunch of Dual Citizens rich on wall street off commissions while you lost billions.  Didnt CALPERS get screwed on that billion dollar Manhattan real estate deal.  Dont give your money to the thieves.

After losing more than $10 billion on real-estate investments, Calpers, the giant California pension fund, is returning to the property market with a new strategy and fewer investment managers, seeking steady, modest gains rather than blockbuster returns.

After investing relatively small amounts in real estate during the past two years, the $226 billion California Public Employees' Retirement System is gearing up to commit as much as $2 billion to property deals in 2011, the fund said. Calpers will be making those investments with less help from some big-name managers, including BlackRock Inc., blk -0.56% Hines Interests and Jones Lang LaSalle Inc., JLL -0.02% which it removed from overseeing parts of its portfolio in recent months.

The California Public Employees' Retirement System officially has lost a $500-million stake in the biggest deal ever in the U.S. for a single piece of residential property.

The owners of Stuyvesant Town and Peter Cooper Village, a complex of 56 buildings with 11,000 rental units near the East River in Manahattan, have agreed to turn the property over to creditors after defaulting on $4.4 billion in debt.

CalPERS had committed 26.5% of the partnership led by Tishman Speyer Properties and Black Rock Inc., one of the fund's real estate investment advisors. "This was one of our investments when the real estate market was peaking during 2005 and 2006," said Clark McKinley, a CalPERS spokesman. "Performance was negatively affected by the aftershock of the market collapse."

CalPERS wrote its Stuyvesant stake down to zero in March, said Chief Investment Officer Joseph Dear. "There were negotiations about how it terminates, but we didn't expect to receive any value on that."

The loss in the New York City apartment market was the most spectacular blowup in what had been a horrendous 2009 for the $200-billion CalPERS. The fund's real estate portfolio dropped by 47.5%, spurring CalPERS to terminate its relationships with some real estate advisors and to write down many of its holdings to market values.

CalPERS had originally projected that the $5.4-billion deal would net it a 13.5% return over seven years.

http://www.nytimes.com/2010/01/26/nyregion/26stuy.html?pagewanted=all&_r=0

http://www.city-journal.org/2013/23_1_calpers.html

Between 2004 and 2006, as the country’s real-estate bubble was inflating, CalPERS pumped $7 billion into the sector, most of it in a few places that later became ground zero for the housing bust. By 2008, the fund owned 288,000 homes and lots, 80 percent of them in property-bubble states California, Florida, and Arizona. The fund’s real-estate portfolio grew from 5 percent of its assets in mid-2005 to 10 percent by June 2008, even as real estate was already collapsing in CalPERS’s biggest markets.

The portfolio included a $500 million bet on two large apartment complexes in New York City—Peter Cooper Village and Stuyvesant Town—that went bust in a high-profile default. There was also an investment of nearly $1 billion in Landsource Communities, which planned to develop some 15,000 acres in California’s Santa Clarita Valley but eventually filed for bankruptcy. By 2011, the value of the fund’s real-estate holdings had declined by 49 percent, resulting in $11 billion in losses.

Desperate for higher returns, CalPERS also bought the riskiest portions of collateralized-debt obligations, accumulating $140 million of them by 2007. These were the packages of debt, largely subprime mortgages, whose defaults helped trigger the 2008 financial meltdown. According to a 2007 story by Bloomberg News, CalPERS bought these investments, known as “toxic waste” on Wall Street, from Citigroup, one of the sinking firms that the government later bailed out. “I have trouble understanding public pension funds’ delving into equity tranches, unless they know something the market doesn’t know,” Edward Altman of New York University told Bloomberg about the CalPERS buys. “If there’s a meltdown, which I expect, it will hit those tranches first.”

When you play with the J Mafia Boyzz you are going to get fleeced on both ends, the ride up and the ride down.

Calpers were idiots, they should of bought out the creditors and carried the project through, weathering the downturn since the fed pumping would of inflated the asset prices right back up.

Fri, 09/19/2014 - 19:14 | 5236231 highwaytoserfdom
highwaytoserfdom's picture

The whole reason for TARP  was the banks sold abx to these guy and sovereigns. Kinda dug this up when looking up the 500,000m for the Clinton foundation with Goldman.  THIS IS THE VISIBLE MARKETS.  IMAGINE THE AIR AMERICA DRUGS. Heck anyone  blame yoirselves.

Top Heavy Hitters

OpenSecrets.org's historically researched organizations

Rank Organization Total All Cycles 1 ActBlue $119,805,859 2 American Fedn of State, County & Municipal Employees $63,562,815 3 National Education Assn $59,991,508 4 AT&T Inc $57,977,064 5 National Assn of Realtors $57,197,540 6 Intl Brotherhood of Electrical Workers $47,074,114 7 Goldman Sachs $47,054,435 8 Carpenters & Joiners Union $43,628,423 9 United Auto Workers $42,462,975 10 Service Employees International Union $41,307,878
Fri, 09/19/2014 - 19:30 | 5236266 Kaiser Sousa
Kaiser Sousa's picture

maybe now they gone rush out and get themselves some of that Ali BooBoo...
since whoever manages their "shit" is such a genius...

"The University of Texas Investment Management Co., the third-largest U.S. academic endowment, sold $375 million in gold bars from holdings of about $1.4 billion and reinvested the proceeds in gold futures and equities."

http://www.bloomberg.com/news/2013-04-24/texas-university-fund-sold-375-...

Fri, 09/19/2014 - 20:03 | 5236373 Freddie
Freddie's picture

WTF?   U of Tex bought about $500 million and took delivery.  That was Kyle Bass who advises for the fund.  He checked everything out and said - you have to take delivery.  They had a big gains and they are selling off some of it?  WTF?   Was scotsman Gordon Brooon named co-manager to the fund?

Fri, 09/19/2014 - 20:39 | 5236485 MedicalQuack
MedicalQuack's picture

I read where there's another hedge fund in San Diego ready to fire their CIO and I think you tweeted it as they leveraged way too high.  Now my favorite video on hedge funds and retirement systems is best addressed in this PBS video that's a couple years old with Cathy O'Neill who worked for Larry Summers doing his models at DE Shaw.  "'Hedge Funds were built to skim off retirement funds" once sentence she says.  It's the second video at this post on retirement, and watch it all.  I love when they ask her if she had an exit interview with Larry Summers...no word spoken, the roll of the eyes say it all.  Sometimes the video stops about 2/3 of the way through and gives you a link to PBS to continue watching it and it's ok as it picks up where it left off. 

http://ducknetweb.blogspot.com/2013/04/the-retirement-game-401k-complexi...

She digs into the mindset of folks who work at hedge funds, again, not talking anything confidential at all but rather about the environment and generic money personalities. 

Fri, 09/19/2014 - 21:26 | 5236622 JR
JR's picture

A symbiotic relationship?

Ring: Why Every New California Tax is Really Just For Pensions

September 17, 2014 By Stephen Frank

Did you know that for years one third of all tuition increases in the UC system goes to the UC pensions system, which as an unfunded liability of approximately $21 billion. Cities have to pay an additional up to 50% to CalPERS to try to cut the $640 billion unfunded liability. Teachers are going to have an 11% additional cut from their paychecks—to pay for $166 billion unfunded liability. Taxes are everywhere, with government refuses to note that some of it is going to pay for pensions.

“None of this stopped Watsonville’s civic leaders from putting onto the June 2014 ballot a Public Safety Sales Tax, Measure G, which in an election with 30% turnout, squeaked through with just over the required two-thirds majority. Shoppers in Watsonville will now pay 9% sales tax.

As reported in the Santa Cruz Sentinel, “about $2.8 million is expected to be collected annually for seven years, and the city’s police and fire departments will split the money 60-40, respectively. The problem with this assertion, however, is that $2.8 million is roughly how much CalPERS intends to increase Watsonville’s annual pension contribution.”

http://www.capoliticalreview.com/capoliticalnewsandviews/page/2/

Watsonville, California, demographics:

Population, 2013 estimate: 52,477

Hispanic or Latino, percent 2010: 81.4%

White alone, not Hispanic or Latino, percent 2010: 13.7%

Language other than English spoken at home, pct age 5+, 2008-2012: 74.1%

Foreign born persons, percent 2008-2012: 41.3%

http://quickfacts.census.gov/qfd/states/06/0683668.html

Fri, 09/19/2014 - 21:16 | 5236597 HedgeAccordingly
HedgeAccordingly's picture

Ma has got this doe'

 On whether Alibaba will buy Yahoo!:

“I think Ali will have its choices of things to do and it will be focusing more on emerging areas, whether that’s in digital goods as in gaming or whether it’s in financial services or logistics or cross-border commerce or even search. I think they have a lot of choices ahead.”

http://hedgeaccording.ly/2014/09/early-alibaba-investor-hans-tung-alibab...

Fri, 09/19/2014 - 22:39 | 5236793 Shad_ow
Shad_ow's picture

Don't need to read, don't need proof.  I'm living it.

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