Today, the board of the pension fund (called NYCERS) voted to liquidate its hedge fund holdings and cease investing in hedge funds in the future. Reuters reports that those holdings were $1.7 billion in the fund’s last report.
Why should pension funds, which manage the retirement money of thousands of regular, middle-class workers, stop investing in hedge funds? The short answer is “because hedge funds charge exorbitant fees and overall those fees are a complete waste of money.” Every pension fund in America should go down the same path as NYCERS, because research has established that pensions everywhere are funneling billions of dollars to Wall Street money managers and not getting anything valuable back in return. One recent study of 11 public pension funds estimated that their investments in hedge funds—which are alluring to pension fund managers because they promise steady, predictable returns, protection from market volatility, and/ or outsized profits—were actually responsible for $8 billion in lost investment revenue.
That is money that could have gone to middle class retirees. Instead, it went to millionaire hedge fund managers. That is not good management.
It is inevitable that more pensions will follow this lead. Word is getting out (about math).