San Diego Union Tribune – The county pension board’s chief investment officer has resigned a week after a second hedge fund collapse in which employee retirement investments could lose as much as $78 million.

David Deutsch, who held the job for five years, oversaw a $2.5 billion loss in pension assets since June 30.

He had pushed the San Diego County Employees Retirement Association – which manages retirement benefits for 35,000 county retirees and current employees – to invest heavily in hedge funds.

The association’s board accepted his resignation in closed session yesterday. His last day will be March 19.

Brian White, the association’s chief executive, said Deutsch didn’t give a reason for his departure and wasn’t given a severance package.

Asked if Deutsch was under any pressure because of investment losses or hedge fund problems, White said, “I think we’re all under a lot of pressure because of the market.”

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Times Online – The Massachusetts Pension Reserves Investment Management Board, which oversees $38 billion, voted to fire hedge-fund firm Austin Capital Management after losing $12 million with alleged Ponzi scheme operator Bernard Madoff.

The state pension board also decided at a meeting in Boston today to dismiss Ivy Asset Management, the hedge-fund unit of Bank of New York Mellon Corp., because several senior managers have left the firm. About $430 million in pension assets were invested with Ivy and $130 million with Austin, the board said.

Austin invested pension assets with Tremont Partners, the hedge-fund unit of Massachusetts Mutual Life Insurance Co. Tremont placed money through its Rye Select Broad Market Prime Fund LP with Madoff, the New York financier accused of fraud in a scheme that may have cost clients $50 billion.

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Hartford Business – State Treasurer Denise L. Nappier said she plans to approve rule changes by January allowing her to allocate up to 8 percent of the state’s $20 billion pension fund in nontraditional investments such as hedge funds.

The move marks a departure from a more conservative investment strategy and comes shortly after the Connecticut funds lost nearly $5 billion in pension assets in the depressed market.

The shift in approach also comes when the hedge fund industry is under stress. The sector’s total assets declined by more than 20 percent between June and October, and the unraveling of Bernard Madoff’s $50 billion Ponzi scheme this month has spotlighted what many see as a general lack of transparency in the industry.

Still, Nappier said investing in hedge funds and other alternative instruments will allow the pension plan to reduce volatility, produce slightly higher returns and create better diversification.

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New York (HedgeCo.Net) – Five billionaire hedge fund managers stood up before Congress yesterday and shared their differing views on the hedge fund industry.

George Soros, Philip Falcone, John Paulson, James Simons and Ken Griffin all took turns defending hedge funds at the House hearing yesterday, though they clearly weren’t on the same page regarding opinions on regulation.

The hearing was called by democratic committee Chairman Henry Waxman of California, as part of a much larger attempt by Congress to delve deeper into the cause of the credit crisis and to see whether or not hedge funds have had a hand in driving down the values of certain markets.

While Harbinger Capital head Falcone was all about greater regulations, saying that investors "have a right to know what assets companies have an interest in," Soros disagreed. The founder of Soros Fund Management warned against "ill-considered" rules and guidelines if they were merely a product of the recent turmoil in the economy.

Griffin of Citadel Investments agreed saying, "We do not need greater regulation of hedge funds. We’ve not seen hedge funds as a focal point of the carnage."

The issue of taxes was also raised, with a slew democratic representatives firing accusations that the fund managers enjoy special tax breaks.

Paulson & Co. head John Paulson came to the defense saying, "If your constituents, whether a plumber or a teacher, bought a stock and if they held that stock for more than a year they would pay a long-term capital gains rate."

Waxman suggested the hedge fund industry faces increased regulation and transparency when President-elect Barack Obama, who has also been vocal on wanting to raise the capital gains tax, takes office in Janary.

All five hedge fund managers who testified have enjoyed extreme success in the hedge fund industry. George Soros, who is best known for his infamous bet against the British Pound in which he pocketed $1 billion overnight, manages over $19 billion through his company.

Phil Falcone and John Paulson both predicted the subprime crisis before it happened. Paulson took home an estimated $3 billion in 2007, the largest single-year profit by a fund manager to date.

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

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