No consultant or manager advises CalPERS staff regarding hedge FoF investments and this was the first time that Wilshire or any non-staff met with these managers. Subsequently Wilshire advises the investment committee should provide direction to staff and Wilshire regarding whether or not it would like future investments to be reviewed by a third party – as is the case for corporate governance managers and external traditional equity managers. According to the report, recent performance has not lived up to the “absolute return” portion of the acronym. For the past five years to the end of March it has retuned 2.7 per cent versus a benchmark of 8.8 per cent, but it outperformed the return of the entire universe of hedge FoFs, which was 1.7 per cent for the period.

“However the underperformance begs the question of the nature of the investments in the RMARS portfolio. CalPERS’ performance is reflective of the universe of hedge FoFs in general, but is it reflective of what the investment committee expects of this program?” About 20 per cent of the monthly excess returns exceed the bonds of plus or minus 2 per cent, which Wilshire said seemed a bit high. The investment committee should discuss whether this is the level of risk it was anticipating when this program was created, it said.