Calpers CIO: Price Is Wrong For What You Get
February 2007
Hedge Fund Daily
To say *Russell Read* is unhappy with the returns from hedge funds
investments for the fees his *California Public Employees Retirement
System *paid for them is an understatement. Last year, CalPERS, for
which he is chief investment officer, paid a half a billion dollars in
management fees for returns, he says, didn't even outperform the stock
market. "We can get average market risk very cheaply," Read said in an
interview at a conference in Geneva. "We hate paying a performance fee
for something we can get very cheaply." On the other hand, he said, "We
have no problem paying high performance fees for a manager's selection,
but we find taking on average market risk inherently unsatisfying."
Comparing the current business relationship to "a charity where you give
these people lots of money, they make a really good living out of it,
and they provide you with returns that are substandard," Read predicts
that the fee system may change to one where better performers get paid
more for producing better-than-market returns. So far, none of this
seems to be affecting institutional inflows into hedge funds, but when
those investors read what Prof. *Harry Kat *of London's *Cass Business
School* writes -- that 80% of hedge funds can't justify their fees, and
that after surveying 2,500 hedge funds over the past 12 years, 80% of HF
investors would have done better in something else -- things might.
