Before the news of Bill Gross' sudden departure from PIMCO washed nearly every other piece of fund industry news off the front page, another news item had garnered considerable attention: The announcement by the California Public Employees' Retirement System, or CalPERS, that the huge and influential pension plan was banishing hedge funds from its approximately $300 billion portfolio. In its public statement, CalPERS cited "complexity, cost, and the lack of ability to scale" as the primary factors in its decision.
Immediately, alarmist-sounding questions began to fly around: Will other pensions follow suit from CalPERS' decision? Does this move spell the beginning of the end for hedge funds? Will so-called liquid alternatives (traditionally hedge fund strategies operating within the constraints of 1940-Act mutual funds) now take over as the default choice for investors seeking hedge-fund-like returns? Meanwhile, some in the hedge fund industry were whispering privately that CalPERS had simply done a poor job of picking its hedge funds.