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Canada's biggest pension funds are largely staying quiet when it comes to their investments that are managed by external hedge funds.
Amid reports that more U.S pension funds are reconsidering whether external hedge funds should manage their money, a number of Canadian pension funds have opted not to comment when asked if they are doing the same.
Those that will talk publicly simply say they have no plans to radically shift their strategies, suggesting the sudden fervour around hedge fund investments hasn't crept north of the U.S. border.
The issue flared up after the California Public Employees' Retirement System announced in September that it would re-allocate the $4-billion (U.S.) it has in hedge fund investments over the next year. This week the Wall Street Journal reported that more U.S. funds are rethinking these investments, including the city of San Francisco's pension fund and the pension fund for police officers in Austin, Texas.
The topic is a hot one because pension funds have poured billions into hedge funds, putting their stamp of approval on these investment vehicles over the past decade. Yet in the wake of weak hedge fund returns in recent years, investors have raised questions as to whether their performance justifies their high fees, which include both an annual money management fee plus a cut of any exceptional profits they deliver. Some investors have also expressed concerns about hedge funds' lack of transparency. Any retreat by pension plans could damage the hedge fund industry's reputation.
The debate, however, isn't playing out in Canada – at least, not publicly. Asked whether they are rethinking their hedge fund investments, the Ontario Teachers' Pension Plan, the investment arm of the Ontario Municipal Employees Retirement System and Alberta Investment Management Corp. all declined to comment. OTPP added that it never comments on its investment strategy.
And, contrary to the U.S. outcry, spokespeople at the Canadian Pension Plan Investment Board and the Caisse de dépôt et placement du Québec, the country's two largest pension funds, said their firms are sticking with their current strategies, which include having external hedge fund managers handle some of their money.
Much like their U.S. peers, these Canadian pension plans outsource some of their investing to external hedge funds to diversify their investment mix, and in some cases, to give them access to money managers who may know a region of the world better than they do, such as Latin America or Asia.
At the end of its last fiscal year, the Caisse had $3.7-billion of its $200-billion portfolio invested through hedge funds. CPPIB's external portfolio management arm, comprised of investments through hedge funds as well as other external money managers, accounted for had $23.2-billion of the fund's $219-billion total.
These external partners include Pershing Square Capital Management and Bridgewater Associates.
Tim Kiladze