Eugene DePasquale, Pennsylvania's elected Auditor General, urged the state workers' and public school employees' pension funds to "reconsider" the $7.6 billion they have invested in high-fee hedge funds (typically designed to make money steadily whether stocks go up or down) now that the California Public Employees' Retirement System plans to "divest" its own $4 billion hedge fund portfolio so it can "reduce complexity and costs."

PSERS, the teachers' fund, has $5.7 billion, or about one-eighth, of its assets invested in hedge funds; SERS has $1.9 billion, or 7 percent, according to DePasquale. (SERS says it's less, see below). SERS was early among the state funds that bought hedge investments, but soured on the class in the late 2000s, former chairman Nicholas Maiale reminded me in an interview Tuesday, after they failed to perform as promised and lost money during the 2008 financial market freeze-up.

"Hedge fund investments may be an appropriate strategy for certain investors and I trust that SERS and PSERS weigh investment options carefully," DePasquale said in a statement. "But, SERS and PSERS are dealing with public pension funds that are already stressed and high fees cost state taxpayers more each year. I support full disclosure of hedge fund fees paid by our public pension funds and we owe it to taxpayers to ensure that those fees do not outweigh the returns."

After years of underfunding under governors of both parties, SERS, PSERS and New Jersey's state pension funds all estimate their future liabilities are tens of billions more than their assets -- including expected investment profits -- and they have required increasing taxpayer "contributions" to stay ahead of yearly payouts, causing Pa. Gov. Tom Corbett to refer to SERS as a "tapeworm" on the state budget.

But post-Maiale, SERS has no plans to cut hedge funds further. "Hedge funds play a role in our current board-approved strategic investment plan, which was designed to structure a well-diversified portfolio," SERS spokeswoman Pamela Hile told me. With many more workers set to retire, hedge funds (or "diversifying assets," as SERS prefers to call them) combine relatively steady returns with low volatility "over varying capital market environments." By SERS's count "difersifying assets" are now down to $1.7 billion, or 6% of the $28 billion fund and returning 10.7% after fees for the year ending June 30, up from a 10-year average of 7.4%.

Says PSERS spokeswoman Evelyn Williams: "We agree with the Auditor General that hedge funds are appropriate for certain investors. Not all investors can or should invest in hedge funds. Clearly CALPERS reviewed their hedge fund allocation and acted in their own fund's best interests.

"PSERS also sets our asset allocation based on our own unique goals and issues. We do not have any immediate plans to change our hedge fund asset allocation at this time... PSERS' hedge fund allocation provides diversification for our asset allocation and is specifically structured so it does not correlate with traditional equity markets...PSERS hedge fund allocation has performed as expected and provided positive investment returns over the past fiscal year, one, three, and five years." PSERS posts hedge fund fee data in its yearly budget statement at http://www.psers.state.pa.us/content/publications/budget/1415budget.pdf

"We would welcome the opportunity to sit down with the Auditor General's staff to answer any questions they may have about PSERS hedge fund investments or any aspect of our investment operations."

EARLIER: While Pennsylvania and California have been talking about cutting back, New Jersey has been increasing its hedge fund investments (and hedge fund fees) since Gov. Chris Christie took office and put professional investor Robert Grady (CORRECTED) in charge of the state investment council.

Hedge funds now account for about one-ninth of New Jersey's $75 billion-plus retirement assets, spokesman Christopher Santarelli told me. He said the hedge funds lost less than many other investments in the 2008-9 market downturn. State data shows that since then they have returned less than U.S. stocks, more than bonds.

Hedge fund fees, including performance and "incentive" fees, topped $200 million for New Jersey last year.

It's hard to know how much Pennsylvania SERS paid, since some SERS hedge fund fees aren't included in the agency's annual report.