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So the newspaper Pension & Investments went to the same “workshop” on hedge funds I went to at the county’s pension board. Their story is a doozy:

At an Oct. 19 educational workshop, on hedge fund investments, San Diego fund officials proclaimed that, contrary to popular perception, the fund did not have one-fifth of its assets invested in hedge funds.

“It’s been bruited about that SDCERA has 20% of its assets in hedge funds. And that’s not the case,” Chief Investment Officer David Deutsch told the board.

Rather, Mr. Deutsch drew a line between high-risk hedge funds and low-risk absolute return strategies.

But observers said the line Mr. Deutsch was drawing is imaginary.

That’s what we call a “take down.”

Turns out I wasn’t the only one completely flabbergasted by the awkward performance of the county pension’s investment staff that day.

The Pension & Investments writer captured the nuance Deutsch was trying to exploit perfectly. Deutsch was trying to say that while the county’s pension portfolio did have 20 percent of its assets in what many people (including them) have called “hedge funds,” true hedge funds are risky and employ creative investing styles and lots of leverage. He said the county pension was invested in only a few of those – certainly not 20 percent of its assets.

The rest of the money invested in places formerly known as hedge funds, was actually invested in so-called “absolute return” funds.

Here’s Joel Chernoff, the Pension & Investments reporter on the word-choice of the whole thing:

Added one consultant, who asked not to be named: “Most people use ‘absolute return’ as a substitute to characterize the entire hedge fund asset class, just like they started using ‘high yield’ instead of ‘junk bonds,’” to avoid negative connotations.

Will Goetzmann, a Yale University professor, who spoke at the San Diego workshop, said hedge funds cover a very broad range of investments, including arbitrage, global macro, and market neutral strategies – all of which Mr. Deutsch categorized as examples of absolute return strategies.

You have to subscribe or pay $3 per article but if you’re into this stuff, the Pension & Investments‘ work on this subject is very good.

SCOTT LEWIS

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