Apparently CalPERS (the California State retirement pension fund) is no longer going to invest in hedge funds, according to this post from Gawker.
I hope this is true. The Gawker article does a nice job of identifying that this is a good move on the part of CalPERS. This is not a “neutral” event or a “wait and see what happens” occurrence. This is, without a doubt, a rational, smart and positive decision by CalPERS.
Unfortunately, hedge funds can also be attractive to families with inherited wealth. Hedge funds appear exclusive. Sometimes they are only available to wealthy investors, and they often tout a great track record. The main problem….that track record often does not continue into the future. Families with inherited wealth need reliability from their investments. Reliability is best achieved through simple strategies with broad diversification, not through the managerial prowess (or lack thereof) of hedge funds.
And if you still aren’t convinced, just remember that Warren Buffet doesn’t invest in hedge funds. In fact, he actively bets against them (click here to read).
Click on the “hedge fund” link in the lower right to see other posts on hedge funds and why they are not good for families or institutional investors.