Alert September 16, 2008

GAO Issues Report on Investment in Hedge Funds and Private Equity Funds by Pension Plans

The GAO issued a report examining trends in defined benefit pension plans investing in hedge funds and private equity funds.  The report’s examination of pension plans’ hedge fund investing discusses increased investing in hedge funds by plans, their goals in investing in hedge funds, their experience with and future intentions regarding hedge fund investing, challenges posed by hedge fund investing (e.g., transparency and liquidity) and how pension plans have addressed these challenges.  As for private equity funds, the report reviews challenges and risks faced by pension plans in making private equity investments (including the variation in performance of private equity funds and the difficulty of accessing top performing funds), the relatively long investment term of private equity funds, and the difficulties of interim valuation.  The report recommends that the Department of Labor provide guidance on investing in  hedge funds and private equity funds that is specifically designed for pension plans.