{"title":"Alternative Asset Fees, Returns, and Volatility of State Pension Funds: A Case Study of the New Jersey Pension Fund","authors":"Jeff Hooke, Carol Park, Ken Yook","doi":"10.3905/jai.2019.1.083","DOIUrl":null,"url":null,"abstract":"This case study provides new information about alternative asset fees to many institutional investors by tapping a relatively unknown data source: state pension fund annual reports. Examining the few state pension funds annual reports that track both fixed fees and carried interest fees of private equity funds and hedge funds, we find that average alternative asset fees were 2.48% of the relevant pension fund assets for the fiscal year ended June 30, 2017. In addition, as New Jersey provides the most detailed alternative asset data, this study discusses New Jersey pension fund’s private equity and hedge fund (a) returns, (b) fees, and (c) volatility, compared to verifiable and public benchmarks for the five years ended June 30, 2017. Both private equity and hedge fund portfolios underperformed the benchmarks, and the alternative asset industries’ claim of higher returns and lower risks than traditional assets is not supported in this study. To the degree that other state pension funds follow the same investment policies and controls as the state of New Jersey, this study concludes that state pension funds should reduce their holdings of alternative asset substantially. TOPICS: Wealth management, retirement, pension funds, private equity Key Findings • The New Jersey pension plan’s private equity fund and hedge fund portfolios (i) are reasonable proxies for both asset classes and (ii) are similar to those of other state pension funds. • PE five-year annualized returns (net of fees) were the same as the S&P 500. Hedge fund returns were significantly below the 60–40 index and equivalent to LIBOR+5%. • PE return volatility was similar to the S&P 500. HF volatility was greater than the 60-40 and LIBOR+5%. Average annual PE and HF fees were 3.29% and 3.08% respectively.","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.4000,"publicationDate":"2019-12-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"1","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Alternative Investments","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.3905/jai.2019.1.083","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 1
Abstract
This case study provides new information about alternative asset fees to many institutional investors by tapping a relatively unknown data source: state pension fund annual reports. Examining the few state pension funds annual reports that track both fixed fees and carried interest fees of private equity funds and hedge funds, we find that average alternative asset fees were 2.48% of the relevant pension fund assets for the fiscal year ended June 30, 2017. In addition, as New Jersey provides the most detailed alternative asset data, this study discusses New Jersey pension fund’s private equity and hedge fund (a) returns, (b) fees, and (c) volatility, compared to verifiable and public benchmarks for the five years ended June 30, 2017. Both private equity and hedge fund portfolios underperformed the benchmarks, and the alternative asset industries’ claim of higher returns and lower risks than traditional assets is not supported in this study. To the degree that other state pension funds follow the same investment policies and controls as the state of New Jersey, this study concludes that state pension funds should reduce their holdings of alternative asset substantially. TOPICS: Wealth management, retirement, pension funds, private equity Key Findings • The New Jersey pension plan’s private equity fund and hedge fund portfolios (i) are reasonable proxies for both asset classes and (ii) are similar to those of other state pension funds. • PE five-year annualized returns (net of fees) were the same as the S&P 500. Hedge fund returns were significantly below the 60–40 index and equivalent to LIBOR+5%. • PE return volatility was similar to the S&P 500. HF volatility was greater than the 60-40 and LIBOR+5%. Average annual PE and HF fees were 3.29% and 3.08% respectively.
期刊介绍:
The Journal of Alternative Investments (JAI) provides you with cutting-edge research and expert analysis on managing investments in hedge funds, private equity, distressed debt, commodities and futures, energy, funds of funds, and other nontraditional assets. JAI is the official publication of the Chartered Alternative Investment Analyst Association (CAIA®). JAI provides you with challenging ideas and practical tools to: •Profit from the growth of hedge funds and alternatives •Determine the optimal mix of traditional and alternative investments •Measure and track portfolio performance •Manage your alternative investment portfolio with proven risk management practices