It Seems Some Pension Funds See Alternative Investments A Bit Differently

Today the WSJ reports on some pension fund managers that view the world a bit differently than those cited in the previous post

JANUARY 3, 2009 Once Burned, Twice Shy: Pension Funds
Calstrs and Calpers, Among Others, Rethink Bets on 'Alternative' Investments After a Tough '08By CRAIG KARMIN
After suffering through 2008, some big pension funds are having second thoughts about their exposure to private-equity firms, hedge funds and other nontraditional investments.
Across the U.S., pension-fund managers and investment officers have been scrutinizing their asset allocations, especially toward alternative investments. In addition to wilted returns, pension funds are leery because some hedge funds have made it hard to cash out, including by postponing redemption requests from investors.

(while hedge funds have made things difficult by not letting investors pull money out, private equity funds have been hitting investors for their contractual obligations to invest more capital into the funds- lw)
Other pension funds that barreled into private equity have been crunched by capital calls, or demands to deliver cash that are often conditions of investment with private-equity firms. While those obligations aren't a surprise, many pension funds expected to offset the payments with returns from other private-equity investments. Such gains have been rare.


Christopher Ailman of the California State Teachers' Retirement System said exposure to alternative investments is burdening pension plans.
"What we saw as an asset before, we now see as a liability," says Christopher Ailman, chief investment officer of the California State Teachers' Retirement System, the country's second-largest public pension fund by assets.
About 14% of Calstrs's roughly $129 billion in assets are in private equity. The pension fund will review those holdings as part of a broader asset-allocation review in February.
It is doubtful that retirement behemoths with billions in assets will retreat completely from alternative investments, partly because returns should improve once the economy pulls out of the recession. Still, some pension funds are likely to reduce their positions or put the brakes on plans to invest more. Other funds feel compelled to hoard cash to compensate for the lack of liquidity.

Few bets turned out well for pension-fund managers in 2008. But alternative investments were doubly painful, partly because ill-timed capital calls from private-equity firms forced some pension funds to sell stocks into the falling market.
Such sales are one reason why the California Public Employees' Retirement System is speeding up its asset-allocation review to early 2009. Previously, the nation's largest public pension fund wasn't scheduled to review its asset weightings until 2010.
"We want to make sure that our assumptions made at the end of 2007 are still valid," says Pat Macht, a Calpers spokeswoman.

"Cash is the biggest challenge," says Bill Atwood, executive director at the Illinois State Board of Investment. While the $9 billion pension fund has entered redemption notices for construction loans and other funds, Mr. Atwood doesn't anticipate seeing that money for as long as six months.
Meantime, he is girding for capital calls from private-equity, real-estate and infrastructure funds. The Illinois fund also has been selling Treasurys, usually a core holding for safety-minded pension plans, to meet cash needs in recent weeks.

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