A number of high profile investors have opted out of hedge investment in the first half of 2016. Examples include AIG, MetLife and NYCERS, citing poor performance as the foremost factor, but also expressing concerns with regard to management and performance fees.
Whether or not one agrees with the decisions made by these firms, it must be acknowledged that they are the result of legitimate business concerns—performance, fees or a combination of the two. That’s fair game. Hedge fund performance has, arguably, been weak and, fees frequently fail to mirror performance.
This Isn’t Fair Game
Hedge fund managers and founders who support charter schools and other educational reforms by donating a portion of their personal wealth to promote these causes are being actively targeted by Randi Weingarten, president of the American Federation of Teachers, simply because she disagrees with their views.
Weingarten is exerting her considerable influence over about two dozen teachers unions whose retirement funds have a total of $630 billion in assets. More broadly, public teacher pension plans, hold nearly $1 trillion in assets, a substantial percentage of which are invested in hedge funds. Because she believes the charitable contributions made by hedge fund managers and founders are a threat to her union’s members, she is actively targeting the hedge funds managed by those with whom she disagrees, by urging unions to either redeem funds already invested or refrain from investment in those hedge funds.
This Is Troubling
Many find such tactics disturbing. Punishing hedge fund firms because of the personal views held by their managers by attempting to force these managers to abandon the charitable work in which they are engaged is an unconscionable tactic – on two fronts.
First, the personally held views of hedge fund managers are a private matter. For example, if these tactics were employed to sway the vote of hedge fund managers in a political contest, there would likely be widespread outrage. Any attempt to force one’s views on another is inherently un-American.
Second, the real possibility that Weingarten’s union members will suffer financially if their unions pull out of hedge fund investments cannot be discounted. While in the aggregate, hedge fund performance has been unimpressive, there are many funds that have enjoyed substantial gains.
Whether or not to invest in a hedge fund is a business decision. There is no justification for a litmus test regarding the privately held views of its management. One cannot help but wonder if Weingarten required a quadruple bypass surgery, would she vet the surgeon based upon his personal views on public education or, on his track record of successful surgical outcomes?
Some hedge fund managers have reacted to Weingarten’s attacks by boosting charitable donations to the organizations she has railed against. Others have caved and withdrawn support.
Ultimately, investment decisions rest with the union’s individual pension fund managers. Hopefully, they will act in the best financial interests of their fund’s members. This is their fiduciary responsibility. Evaluating the personal belief system of hedge fund managers is not in their scope of responsibility.