Institutional Investor's Alpha Magazine - December 2008 / January 2009 - (Page 10)

strategies like portable alpha (see “An Alpha Bet Gone Bad,” page 46). The upshot is a broad, renewed interest in the so-called legal list, a set of limits that certain states place on their public pension funds. Proponents of the list argue that a pension fund must meet its payout obligations even in the Right: Thomas worst economic slumps, unlike, say, a DiNapoli oversees college, which can postpone building a the New York new hockey rink until it can rebuild its Common endowment. Thus, the pension funds Retirement Fund. that have not made the headlines lately SCOREBOARD SCOREBOARD* Hedge fund returns by strategy, sorted by investment process, asset class and geographic focus, through October 31, 2008. October return Composite, equally weighted Composite, asset-weighted PROCESS GROUP YTD return –15.61% –12.70 3-month return –12.18% –10.50 12-month return –16.84% –13.52 –5.61% –4.25 Directional trading Systematic trading Discretionary trading Relative value Arbitrage Convertible arbitrage Fixed-income arbitrage Merger arbitrage Statistical arbitrage Multiprocess Security selection Long bias No bias Variable bias Short bias Specialist credit Distressed securities Long-short credit Multiprocess group Multiprocess Event-driven ASSET CLASS INDEXES 1.37 6.58 –4.99 –7.06 –10.96 –14.09 –14.91 –3.36 –0.18 –2.24 –8.49 –11.30 –3.39 –5.55 7.85 –8.79 –11.05 –6.87 –5.59 –5.93 –4.53 0.69 14.53 –14.23 –15.05 –19.83 –30.18 –23.59 –6.13 –7.70 –10.19 –22.96 –29.13 –9.54 –16.36 18.20 –16.46 –20.27 –13.61 –17.31 –18.01 –14.49 –2.05 5.51 –11.09 –13.36 –17.95 –26.93 –20.55 –5.35 –7.60 –5.99 –16.47 –20.47 –8.55 –12.81 8.36 –13.84 –16.94 –11.49 –13.75 –14.49 –11.02 1.13 15.59 –14.48 –15.59 –19.99 –31.27 –23.70 –8.98 –8.73 –9.76 –24.85 –31.53 –10.03 –17.71 24.71 –17.58 –20.91 –15.54 –18.88 –19.29 –16.86 Equity Fixed income Diversified Currencies GEOGRAPHIC AREA –7.30 –9.15 –0.20 0.83 –20.54 –17.49 –1.67 1.43 –14.86 –14.72 –3.53 –0.38 –22.38 –18.12 –1.33 1.38 Developed markets Europe North America Japan Developed markets, diversified Emerging markets Combined Asia-Pacific Global markets –4.33 –3.20 –7.05 –5.04 –0.78 –12.02 –8.96 –7.09 –11.18 –11.54 –15.91 –14.90 –1.22 –30.98 –28.76 –23.19 –9.66 –8.47 –13.58 –9.56 –4.33 –23.30 –18.18 –15.41 –12.36 –13.53 –17.29 –17.24 –1.02 –31.33 –31.01 –25.13 * Index values and returns before October 2008 were calculated by MSCI. Source: Morningstar. tend to be models of successful conservative investment. Take New York’s $120 billion Common Retirement Fund, which pays out some $600 million a month to beneﬁciaries. Its legal-list restriction means the ﬁxed-income components of the portfolio are managed so that they will provide the liquidity needed for payouts. Alternative investments by law cannot exceed 25 percent of the overall mix. Still, restrictions don’t always provide a perfect shield. One of the riskiest recent asset classes is domestic equities, says Thomas DiNapoli, the New York state comptroller who oversees the CRF. DiNapoli says he has developed an asset allocation study for 2009 in which he will look for ways to change the pension fund’s investment mix with an aim toward decreasing volatility. Not everyone is adopting this view. The board of directors of the nation’s largest public employees pension, the California Public Employees’ Retirement System, reviews the asset allocation strategy at the $182.6 billion portfolio every three years. It last tweaked the mix in 2007, when it was valued at $249.6 billion at the end of June; CalPERS spokesman Clark McKinley says the board has no plans to review the allocations before it is scheduled to do so again, in 2010. The shifts at the end of 2007 included a 2 percent increase in real estate, to 10 percent of the total portfolio, as well as a decrease in ﬁxed income, to 19 percent from 23 percent. Two thirds of the fund remains in public and private equities. “Historically, the stock market is very efficient,” says McKinley. “That is a hard thing to say at the moment, but it’s simply the truth.” Last year the 77-year-old fund, which has never missed a payout, paid $10.8 billion and took in about the same amount in contributions. “We don’t follow the credit rating agencies and instead favor our own more judicious research,” McKinley says by way of explaining the fund’s stability. Another reason is the implicit understanding that the goal of a pension fund is to achieve 100 percent “funding of assets to liabilities,” says Teresa Ghilarducci, chairwoman of the Bernard Schwartz Center for Economic Policy Analysis at the New School for Social Research in New York. “Anything more, and there’s a call to increase benefits. Anything less, people assume the politicians are being greedy.” — J.A. Still Cranky B ig companies hate short-sellers. This is the apparent conclusion of a new study commissioned by NYSE Euronext, operator of the New York Stock Exchange, and conducted by Princeton, New Jersey– based Opinion Research Corp. The results, based on interviews with 438 executives from publicly listed corporations, found broad support for permanent rules that would include disclosure requirements aimed at protecting shareholders (letting them know when and to what extent 10 • INSTITUTIONAL INVESTOR’S ALPHA • DECEMBER 2008/JANUARY 2009 MIKE GROLL/AP PHOTO

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - December 2008

Institutional Investor's Alpha Magazine - December 2008 Contents Letter from the Editor Longs & Shorts Inside the Trade Pension Corner The Good Guys Interview: Stanley Fink Cover Story: The New Regulatory Reality United States: The Usual Suspects Europe: Flirting with Unity Asia-Pacific: What Asian Contagion? In Theory In Focus Strategies Research Center Alpha Bytes Unhedged Commentary

Institutional Investor's Alpha Magazine - December 2008

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