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August 04, 2014

"Some Public Pension Funds Making Big Bets On Hedge Funds"

I don't think this will end well.

Public pension funds have been doing something new in recent years — investing in hedge funds.

Hedge funds are often secretive investment firms led by supposedly supersmart fund managers. Though, sometimes they implode spectacularly — think Long-Term Capital Management. Another prominent firm, Galleon Group, recently got shut down for rampant insider trading.

Those may be rare examples, but one thing that's true about nearly all hedge funds is that they charge high fees. And some experts are questioning whether public pension funds should be investing this way.


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While this is just monumentally stupid, you should remember that the people making these decisions not only won't be hurt when they go wrong but are in all likelihood being recompensed in some way now for making them.

Jack PQ

Paygo pensions, and their valuation method, are fundamentally flawed (see Joshua Rauh for example). They've ignored key advice from financial researchers and now it's too late.

On hedge funds, a top researcher at NYU Stern (sorry not sure I can give his name) gave a talk describing his careful research to find out the true performance of hedge funds, and the true returns are underwhelming. (This is not trivial to show because hedge fund returns are self-reported, to name just one bias.)

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