Institutional Investor's Alpha Magazine - February 2009 - (Page 16)

Pension Corner domestic equity (40 percent), international equity (18 percent), ﬁxed income (33 percent) and cash (2 percent). Tosh’s target asset allocation, which he says will likely be adjusted as markets fluctuate, does not yet include hedge funds. It breaks the portfolio for the time being into domestic equity (30 percent), international equity (18 percent), emerging-markets equity (5 percent), private equity (6 percent), venture capital (1 percent), real estate (5 percent), ﬁxed income (25 percent), emerging-markets debt (5 percent) and commodities (5 percent). Going forward, the retirement pool will consider a portable alpha strategy, an investment in funds of funds or perhaps putting money directly into hedge funds. Tosh concedes that whatever changes occur may seem subtle on the surface but says that they should carry strategic force as he tries to reduce Kentucky’s funding shortfall. “We want to be smart about how we grow the portfolio,” he says. “Obviously we want to make the money work as hard as it possibly can and move us closer to ﬁlling that gap. But that gap is pretty big.” ministrator of the Ventura, California–based plan, says current events may limit exactly how and when, or even if, VCERA takes the plunge. For one thing, he notes, recent headlines will likely magnify any doubts board members have about hedge funds and may delay the initial venture. “When you read things like the Madoff situation, that probably will not help a trustee,” notes Thonis, referring to revelations in early December that investors had lost an estimated $50 billion to Bernard L. Madoff Investment Securities in what Madoff himself described as a vast Ponzi scheme. The board nonetheless is pursuing what Thonis calls its hedge fund education process — which has included attending hedge fund conferences and seminars — and tentatively plans to dedicate about 1.5 percent of its total allocations to funds of hedge funds this year. Thonis says board members are well aware that broad losses in the hedge fund industry in 2008 may bear a silver lining for newcomers like VCERA: “It’s an opportunity for the cream to rise to the top — you’re seeing fees come down, you’re seeing transparency improve, and some of the opaqueness of investing in these types of vehicles is changing.” All of which may be good news for the Ventura County system, whose plain-vanilla mix of equity (65 percent), ﬁxed income (27 percent) and real estate (8 percent) sustained a 31.7 percent loss for the ﬁrst 11 months of 2008 — not very good, but better than the S&P 500. In its effort to recover and diversify, the board plans to try other strategies — in addition to hedge funds — that will bring its alternative-investment allocation to 5 percent of assets. (New strategies may include adding a currency overlay and a global private equity component.) Plan administrators are hoping alternatives will help VCERA achieve and maintain its yearly rate-of-return goal of 8 percent. But given the uncertain times, Thonis stresses, none of the proposed categories or their sizes is immutable. “I would not characterize these as being etched in stone,” he says. “Maybe all of it will be funded eventually; perhaps none will be.” Thonis, who was VCERA’s CFO before assuming his current role three years ago, predicts that if the board opts to take a chance on hedge funds, the move may create conﬁdence. “Any of us learns more if we have a stake in the game,” he points out. — K.G. A Sudden Hesitation in Ventura County potential foray by the $2.2 billion Ventura County Employees’ Retirement Association into hedge funds is not a response to the economic downturn of the past year — the association’s nine-member board has been boning up on hedge funds since 2006. But Tim Thonis, retirement ad- A $1,600 MANDATES A recent poll by global wealth manager SEI Investments Co. found that 92 percent of nonproﬁts see global diversiﬁcation as their key defense against current market volatility. Of the nonproﬁt executives in the poll who said they increased their non-U.S. investments last year, one fourth did it through hedge funds. Below are other institutions that are looking to hedge funds as part of their response to the roiling markets. SEARCHES* Investor Connecticut Retirement Plans & Trust Funds Assets ($ millions) $20,000 Mandate amount ($ millions) Details The plan intends to make a ﬁrst-time commitment to hedge funds and may allocate up to 8 percent to the vehicle, pending the approval of the state’s investment advisory council. The small retirement system is requesting proposals from qualiﬁed ﬁrms managing diversiﬁed fund-ofhedge-funds portfolios. It expects to invest between $1 million and $2 million in the vehicle. Though the Swindon, U.K.–based scheme dropped its plan to increase investments in hedge funds in 2008, it may revisit the asset class in 2009 by doubling its hedge fund exposure to 2 percent (provided market conditions are favorable). Lexington (Massachusetts) Contributory Retirement System Nationwide Building Society Pension Fund 90 2 2,571 26 ALLOCATIONS* Investor Public Employees Retirement Association of New Mexico Swansea City & County Pension Fund Teachers’ Retirement System of the State of Illinois Assets ($ millions) $ 8,500 Mandate amount ($ millions) Details $ 30 The plan has approved a $30 million allocation to the Taconic Opportunity Fund. The allocation will be funded from ﬁxed income and redemption of a hedge fund investment in the Pendragon Fund. The Swansea, U.K.–based scheme has hired BlackRock International and Fauchier Partners for £19 million ($28.5 million) each in fund-of-hedge-funds mandates. The Springﬁeld, Illinois–based fund has committed $179 million to Bridgewater Associates, its ﬁrst direct hedge fund manager. The selection is part of its plan to increase its absolute-return allocation to 2.5 percent from 1.3 percent. 1,117 57 30,000 179 * Ongoing searches for and recent allocations to hedge funds or funds of hedge funds by institutional investors, as reported by iisearches.com in December 2008. 16 • INSTITUTIONAL INVESTOR’S ALPHA • FEBRUARY 2009 http://www.iisearches.com

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - February 2009

Institutional Investor's Alpha Magazine - February 2009 Contents Letter From the Editor Longs & Shorts Digging Out A Call to Mentor Dicey Detroit The Constant Skeptic Cover Story: The Undaunted What Were They Thinking? Dark Days in Greenwich True Stories from the Commodities Files Return of the Native The Quest for Cover Moving On from Madoff

Institutional Investor's Alpha Magazine - February 2009

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