Should Calpers have ditched hedge funds or allocated more?

In light of CalPERS’ termination of its hedge fund program, Risk.net editor Luke Clancy covers exclusive MPI research on the relationship between scale, selection and impact of allocations to hedge funds on the portfolio risk and return profile at pension funds. Testing a hypothetical CalPERS portfolio with allocations to hedge funds of 1%, 5% and 10%, MPI’s research finds significant positive benefits on total returns and risk-adjusted returns of hedge fund allocations at the 5% and 10% levels, though negligible impacts on the risk and return profile at the 1% level. The findings contribute to the industry debate about the role of hedge funds in defined benefit plans, including issues of scale and selection. The article appears in the November issue of Risk, as well as online in a related CalPERS story. For the full research, see MPI’s Research.