Public pensions from California to Ohio are backing away from hedge funds because of concerns about high fees and lackluster returns.

Those having second thoughts include officials at the largest public pension fund in the US, the California Public Employees' Retirement System, or Calpers. Its hedge-fund investment is expected to drop this year by 40%, to $3 billion, amid a review of that part of the portfolio, said a person familiar with the changes. A spokesman declined to comment on the size of the reduction but said the fund is taking more of a "back-to-basics approach" with its holdings.