"We are always examining the portfolio to ensure that we are efficiently and cost-effectively achieving our risk-adjusted return goals," said Ted Eliopoulos, CalPERS interim CIO.

"Hedge funds are certainly a viable strategy for some, but at the end of the day, when judged against their complexity, cost and the lack of ability to scale at CalPERS' size, the ARS program is no longer warranted," he added.

According to the statement, CalPERS board adopted a set of formal "Investment Beliefs" to inform their allocation process in September of 2013.

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One of the beliefs states that risk will be assumed only where a strong chance of return existed. Another stated: "Costs matter and need to be effectively managed."

"The Investment Beliefs exist to provide a compass for the System's work to achieve its strategic goals," said Henry Jones, CalPERS board member and chair of the Investment Committee.

The investment board reallocated assets in February of this year to reduce risk exposure, with the goal of returning 7.5 percent returns.

Over the past 10 years, the ARS program returned and average of 4.8 percent.

CalPERS returned 18.4 percent last year. It's averaged a 12.5 percent return for the past five years, and an 8.4 average return for the past 20 years.

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Liquidating the hedge fund portfolio will require approximately one year, according to the statement.

According to reporting from Bloomberg, CalPERS first began investing in hedge funds in 2002.

CalPERS paid $135 million in fees from the ARS program in the fiscal year ending June 30^th. For the year, the fund returned 7.1 percent, adding 0.4 percent to the retirement fund's overall return, according to Bloomberg.