Page 274

long/short. Many of these crossover funds came from the private equity sector. The Japanese institution received a good amount of transparency in venture capital and expects the same with hedge funds. Institutions would also like to know who the other investors are and details of the portfolio.

Transparency

Transparency is something that the institutions would like more of because hedge fund strategies are very different from long-only investments to which they are accustomed. Furthermore, the risks of different strategies are hard to map together. Transparency would help resolve this concern.

Managed accounts also enable more transparency and help manage risk. With managed accounts, investors can more quickly spot a problem and react if the manager is not performing as expected.

Happy with Returns

Though the programs have been in existence for differing time periods, the institutions feel their objectives have been met. CalPERS is using hedge funds to fill in gaps in its portfolio; the Japanese company has a smoothed portfolio and noncorrelation to Japanese stock market exposure.

Distribute to Others

Interestingly, two out of the three institutions started allocating to hedge funds with their own proprietary capital. Now comfortable with that experience, they are developing or planning to develop products for others in their respective countries.

U.S. SITUATION

California Public Employees Retirement System (CalPERS), a $168 billion public pension plan, announced in August 1999 that it would invest