When a pension fund wants to invest in hedge funds, it generally has to jump through some hoops first. There are boards of directors to educate, risk levels to measure, beneficiaries to consult. At the $1.3 billion City of Phoenix Employees’ Retirement System (Copers), the process is complicated even further by an antiquated city charter that specifies where the system can — and cannot — invest.
The rules were imposed in 1953, long before pension directors had to think about terms like short-selling and leverage and long before Phoenix began its ascent as a Sun Belt hub (it is the fifth-biggest city in the U.S. now, with a population of about 1.5 million). The guidelines, in short, were tailored for a world of finance that no longer exists, and Copers’s investment manager, Greg Fitchet, readily concedes that the restrictions are outdated.
But revising the...
