Get Our Blog
  • Eric Hahn

Why Pensions and Hedge Funds Don’t Mix

Year in and year out, public pension managers invest in hedge funds that promise market-beating returns. The stated aim is to narrow the gap between what the pensions have promised future retirees and the money available to meet those obligations. What happens instead is that the pension gaps remain while the hedge funds gorge on fees.

A recent report in The Times by Gretchen Morgenson cited the latest research on pensions and hedge funds. One study, by researchers for the American Federation of Teachers, looked at hedge fund holdings in 11 large public pensions between 2002 and 2015, and found that hedge funds lagged overall plan performance in most years, costing the pensions an estimated $8 billion in lost investment revenue. The hedge funds, meanwhile, collected some $7.1 billion in fees, which averages out to 57 cents for every dollar the pensions kept on their hedge fund investments. In effect, the pensions were looted.

One obvious question is why pension managers keep investing in hedge funds. A common explanation is that pension trustees are naïve and desperate and easily outfoxed by Wall Street salespeople. There are also signs, however, of willful blindness. The new analyses are only the latest to cast doubt on the benefits of hedge funds for big, long-term investors. In addition, the California Public Employees’ Retirement System, or Calpers, a pension industry leader, announced last year that it was winding down its hedge fund holdings because of their complexity and high costs. Other pensions have not taken Calpers’s cue.

There are several reasons why hedge funds do not live up to their hype. One is rapid growth — to $3 trillion recently — which means that one bad year can outweigh the gains in years when the funds were smaller. Another is flattering performance measures that exclude poor performers and emphasize hot newcomers. The biggest hit to returns is layers of fees, typically 2 percent of assets under management, plus 20 percent of any gains — for starters.

Rosy promises about hedge fund returns can hurt pension plans in another important way, by giving politicians cover for not making full and timely contributions to troubled plans. Projections from pension plan managers that high-octane hedge funds can make up for any gaps relieves the pressure on delinquent politicians to make the required deposits.

The end result is poorer pensions and richer hedge funds. The victims are the public employees who are counting on their pensions for a secure old age.

Portfolio &
Money Management


Contact Us

4 Landmark Square - Suite 315
Stamford, CT 06901





ADV Part 2 | ADV Part 3 (CRS) Privacy Policy | Cyber Security Policy | Business Continuity Plan Client Secure Upload


Check the background of this firm on FINRA’s BrokerCheck.           


NS Capital LLC is a Registered Investment Adviser. NS Capital and its representatives are in compliance with the current filing requirements imposed upon registered investment advisers by those states in which NS Capital maintains clients. NS Capital may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. NS Capital’s web site is limited to the dissemination of general information pertaining to its advisory services, and through the NS Blog access to additional investment-related information, publications, and links.  Accordingly,  NS Capital’s web site on the Internet should not be construed by any consumer and/or prospective client as NS Capital’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.  Any subsequent, direct communication by NS Capital with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of NS Capital, please contact the SEC or the state securities regulators for those states in which NS Capital maintains a notice filing.  A copy of NS Capital current written disclosure statement discussing NS Capital’s business operations, services, and fees is available from NS Capital upon written request. NS Capital does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to NS Capital’s web site or incorporated herein, and takes no responsibility such content.  All such information is provided solely for convenience purposes only and all users should be guided accordingly.


Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by NS Capital), will be profitable or equal any historical performance level(s).


Certain portions of NS Capital’s web site (i.e. newsletters, articles, commentaries, etc.) may contain a discussion of, and/or provide access to, NS Capital (and those of other investment professionals) positions and/or recommendations as of a specific prior date.  Due to various factors, including changing market conditions, such discussion may no longer be reflective of current position(s) and/or recommendation(s).  Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from NS Capital, or from any other investment professional. NS Capital is neither an attorney nor an accountant, and no portion of the web site content should be interpreted as legal, accounting or tax advice. 


Rankings and/or recognition by unaffiliated rating services and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if NS Capital is engaged, or continues to be engaged, to provide investment advisory services, nor should it be construed as a current or past endorsement of NS Capital by any of its clients.  Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. Each client and prospective client agrees, as a condition precedent to his/her/its access to NS Capital web site, to release and hold harmless , NS Capital’s officers, directors, owners, employees and agents from any and all adverse consequences resulting from any of his/her/its actions and/or omissions which are independent of his/her/its receipt of personalized individual advice from NS Capital.

© 2020-2025 NS Capital LLC. All Rights Reserved.