The Los Angeles City Employees’ Retirement System (LACERS) is debating whether to bring hedge funds into its $17bn portfolio, but board members and staff have expressed concerns about their ability to access top managers and hedge funds’ willingness to comply with new California transparency rules.

The retirement system is in the midst of long-term asset allocation discussions, and consultant NEPC has recommended including a 4% allocation to hedge funds in one of its three candidate portfolios. LACERS does not currently have an allocation for hedge funds, and NEPC senior research consultant Dulari Pancholi visited LACERS’ March 27 board meeting to provide education on the topic to the board. The first step for LACERS, if it added hedge funds, would be to decide what role they play in the overall portfolio, Pancholi said. Some pension funds use hedge funds to improve risk-adjusted returns, while others are looking solely to mitigate downside risk, and others look to hedge funds to offer strategies that might not be included in traditional allocations, such as shorting capabilities, Pancholi said.

“Clients are more aware of what is in their book, what are their needs, and how they want hedge funds to work out for them,” Pancholi said. “Hedge funds are used across our entire client base, and within public funds, clients use them in different ways.”

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Published by Money Management Report/Pageant Media