New Mexico's Public Employees Retirement Association (PERA) is considering eliminating its hedge fund allocation as part of a broader review of its investment strategy, according to a report by Pensions & Investments.

The potential move would represent a significant shift for the pension fund, which has historically maintained a 6% target allocation to absolute return strategies to provide portfolio diversification.

The review follows several changes to PERA's investment portfolio, including a reported $100m redemption from Two Sigma Investments in September amid concerns over governance and organisational uncertainty. The pension fund has also reportedly withdrawn $100m from Rockwood Capital's multifamily real estate fund as it reassesses its wider alternatives exposure.

The proposed exit comes amid growing scrutiny of hedge fund allocations among institutional investors, particularly over their role in portfolio diversification and risk-adjusted returns. However, PERA has yet to make a final decision or disclose how any capital withdrawn from hedge funds would be redeployed.