Illinois isn’t rethinking its decision to stop investing in hedge funds, Illinois State Board of Investment Chair Marc Levine told CNBC on Wednesday.
In fact, while he was once an “outlier,” Levine said others are seeing what he saw taking place over the last five to 10 years.
“This hedge-fund industry is destroying enormous value for institutional investors," he said on “ Power Lunch ” from the eighth annual CNBC and Institutional Investor Delivering Alpha conference in New York.
“The stock pickers, which is about half of that crowd, kind of suckered investors into following a benchmark that makes no sense,” he added. “Once you compare them to equity markets, they actually underperformed by about 150 basis points.”
Meanwhile, the other half — the derivative book hedge funds — should have equity-like returns, but instead are returning 2 percent, said Levine.
The Illinois State Board of Investment, which manages $22 billion for 140,000 state employees, got out of hedge funds last year, after starting the process in 2016.
It now has two-thirds of its assets in passive investments, while the remaining one-third is actively managed.
“I truly believe, comparing our portfolio today versus three years ago, that we have better, much bigger sort of aggregate alpha opportunity in that one-third because we are so targeted,” Levine said.
Most of those investments are in private markets, he noted.
He particularly likes opportunistic noncore real estate and credit, where banks have been receding from lending.
And while the fund does some investing in private credit, Levine likes to look into the “nooks and crannies,” such as distressed mortgages, late-stage aircraft and perhaps energy assets.