Dutch Pension Fund Pulls The Plug on Hedge Funds

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January 9, 2015 -- Another pension fund is bailing on hedge funds. The Dutch health-service pension fund Stichting Pensioenfonds Zorg en Welzijn (PFZW) will no longer invest in hedge funds, reports Dutch newspaper NRC Handelsblad.

The pension scheme, which has approximately €156.3 billion ($184.7 billion) in assets under management, allocated 2% of this to 40 different hedge funds, including Blackstone, Cerberus, Harbinger and Oaktree as of the end of June.

Citing high costs and investment complexity, the second-largest Dutch fund said that the investing strategy failed to provide sufficient returns.

"With hedge funds, you're certain of the high costs, but uncertain about the return," the company's manager for investment policy Jan Willem van Oostveen told Reuters.

In a statement, PFZW, which represents 2.5 million members, also cited “the high levels of remuneration in the hedge fund sector and the often limited attention to social and environmental issues.” The fund’s name translates to "Pension Fund for Care and Well-Being.”


Pennsylvania's Wolf targets Wall Street fees in tackling pension

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By Romy Varghese, Bloomberg News

March 20, 2015 -- To ease Pennsylvania's pension obligation, Gov. Tom Wolf isn't targeting public workers, the focus in neighboring New Jersey and around the country. He's eyeing payments to Wall Street.

The first-term Democrat is calling for Pennsylvania's two pension systems to reduce investment-manager fees that are higher than the average U.S. public plan. He's also counting on Wall Street banks to market bonds the state would use to bolster one of the funds.

As retirement costs consume a growing share of municipal budgets, pension boards are scrutinizing payments to money managers. California Public Employees' Retirement System plans to liquidate its hedge-fund program, while Pennsylvania's Montgomery County moved most of its holdings to cheaper, passively managed funds, which track indexes. Wolf wants to adopt lower-cost approaches that may save $200 million annually.

"We're not talking about suddenly overnight going to a 100 percent passive investment strategy," said Randy Albright, Wolf's budget secretary. "We're talking about strategically re-evaluating the mix and trying to look at ways that they can reduce risk and reduce fees."

Pennsylvania ranked second-to-last after New Jersey among states by the percentage of the required pension contribution that it made from 2001 to 2013, according to a March report from the National Association of State Retirement Administrators. Ratings companies cite the pension burden in giving Pennsylvania a grade two steps below the average for U.S. states. Standard & Poor's and Fitch Ratings cut their marks in September to AA-, fourth-highest.

In his first budget address this month, Wolf said Pennsylvania "has been wasting hundreds of millions of taxpayer dollars on Wall Street managers."


Wall Street Fees Wipe Out $2.5 Billion in New York City Pension Gains

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By Patrick McGeehan, New York Times

APRIL 8, 2015 -- The Lenape tribe got a better deal on the sale of Manhattan island than New York City’s pension funds have been getting from Wall Street, according to a new analysis by the city comptroller’s office.

The analysis concluded that, over the past 10 years, the five pension funds have paid more than $2 billion in fees to money managers and have received virtually nothing in return, Comptroller Scott M. Stringer said in an interview on Wednesday.

“We asked a simple question: Are we getting value for the fees we’re paying to Wall Street?” Mr. Stringer said. “The answer, based on this 10-year analysis, is no.”

Until now, Mr. Stringer said, the pension funds have reported the performance of many of their investments before taking the fees paid to money managers into account. After factoring in those fees, his staff found that they had dragged the overall returns $2.5 billion below expectations over the last 10 years.

“When you do the math on what we pay Wall Street to actively manage our funds, it’s shocking to realize that fees have not only wiped out any benefit to the funds, but have in fact cost taxpayers billions of dollars in lost returns,” Mr. Stringer said.


"Watch the Fees, Please"

By Tom Croft

There has been a lot of controversy over the question of excessive fees and expenses being paid by pension funds to asset managers.  As the Department of Labor (DOL) explains, fees are one of several factors that pension fiduciaries need to consider when selecting service providers and plan investments. While the law does not specify a permissible level of fees, it does require that fees charged to a plan be “reasonable.” When fees for services are paid out of plan assets, fiduciaries will want to understand the fees and expenses charged and the services provided.  And they will want to monitor the plan's fees and expenses to ensure that they continue to be reasonable.

In recent years, pension funds have become much more diligent in enforcing this rule.  There have been a number of highly publicized decisions by pension funds that strongly questioned the reasonableness of service provider fees, especially by hedge funds and private capital funds.  CalPERS famously divested its holdings in hedge funds recently due to their view that hedge managers charged extraordinarily high costs and yielded relatively low returns in recent years.

Here are three new stories about capital stewards and policy leaders sharpening their pencils—in New York City, Pennsylvania and the Netherlands.

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