Institutional Investor's Alpha Magazine - March 2008 - (Page 19) should not reduce their hedge fund exposure. “It’s certainly true that because of the competition in the hedge fund space, returns are not likely to be as high as they were ten years ago,” says Boldt. “But the same could be said of real estate, private equity, timber and domestic equities.” Though Miller plans to continue paring back Oberlin’s hedge fund allocation, she says she will do so without a major portfolio change. The endowment will work within its current hedge fund allocation range of 36 to 54 percent. At present, the portfolio is divided into a 60 percent alternatives allocation (with 44 percent in absolute-return and opportunistic strategies, 11 percent in private equity and 5 percent in real assets), a 26 percent equity allotment and a 14 percent fi xed-income allocation. Miller says the school is also interested in increasing its exposure to green investments, particularly through private equity and venture capital funds. City of Norwalk Employees’ Pension System rederic Gilden, city comptroller for Norwalk, Connecticut, and overseer of the $385 million City of Norwalk Employees’ Pension System, will do whatever it takes to avoid a recurrence of his fund’s abysmal performance at the start of the decade. Like many pension plans that had a large allocation to U.S. equities — 60 percent in its case — Norwalk took its lumps after the stock market bubble burst in 2000, losing 2.9 percent in 2001 and 12.7 percent in 2002. Gilden and Norwalk’s 12-member investment board ventured into hedge funds in October 2002. They have been so pleased with the returns — and the stability — provided by hedge funds that they recently increased their allocation, making their first new hedge fund hire since their initial foray. “We got into hedge funds so we could be sure we wouldn’t have any more large swings,” says Gilden, 55, who joined Norwalk in 1999 after 11 years as comptroller for the city of Hartford, Connecticut. “We want to be sure we don’t go down when the market goes down.” In 2002 the Norwalk retirement plan, which oversees the pensions of the city’s police force, fi re department, food service workers and municipal employees, allocated 10 percent of its then–$300 million portfolio to hedge funds. Like most small public plans, Norwalk opted to use funds of hedge funds, which offer experienced manager selection and portfolio construction, as well as instant diversification. The investment was split evenly between Blackstone Alternative Asset Management’s Park Avenue Fund and Ivy Asset Management’s Rising Stars Offshore Fund. Both have performed admirably. Ivy’s Rising Stars Fund has an average annual return of 11.1 percent for the five years ended December 31, 2007; Park Avenue is up an annualized 9.6 percent. Bolstered by their success, Gilden and the board decided that other alternative investments should follow. In February 2007 they added a 3 percent allocation to an infrastructure fund. Next on the list is a distressed-debt fund, which the board has just begun to research with the help of its consultant, Norwalk-based Evaluation Associates. In November 2007, Norwalk boosted its hedge fund F allocation, which had grown to 12 percent through investment appreciation, to 16 percent. Two months later the plan hired a third fund-of-funds manager — ABS Investment Management, based in Greenwich, Connecticut. Norwalk put $14.6 million into ABS’s Global Offshore Portfolio. Gilden says that the vehicle offers greater exposure to hedge funds investing outside the U.S. than does either Park Avenue or Rising Stars. In addition to its 16 percent allocation to what Norwalk calls global absolute return, the city’s portfolio has 27 percent in fi xed income, 25 percent in U.S. equities, 14 percent in non-U.S. equities, 7 percent in emergingmarkets equities, 5 percent in private equity, 3 percent in infrastructure and 3 percent in an inflation-hedge mutual fund. Gilden expects diversification to help buffer the plan against the current market storminess. — K.G. London-based consulting firm Watson Wyatt reported recently that mandates to hedge funds by their U.K. pension fund clients increased by more than 60 percent in 2007 compared with the previous year. Below are some U.K. funds issuing such mandates. SEARCHES* Investor John Lewis Partnership Pension Trust London Borough of Lewisham Pension Fund Swansea City & County Pension Fund (Local Government Pension Scheme) MANDATES Assets ($ millions) $4,144 1,369 1,825 Mandate amount ($ millions) Details $207 39 86 The scheme seeks to appoint two more hedge fund managers, for mandates of £50 million ($103.5 million) each. The fund is looking to invest approximately 3 percent of its assets with a multistrategy fund-of-hedge-funds manager. The plan intends to hire one or two multistrategy fund-offunds managers. ALLOCATIONS* Investor RAC (2003) Pension Scheme Volkswagen Group U.K. Pension Scheme West Bromwich Building Society Staff Retirement Scheme Assets ($ millions) $1,949 Mandate amount ($ millions) Details $98 The pension scheme hired Blackstone Group International to manage its 5 percent maiden investment in hedge funds, which is to be funded from its equity allocation. The fund has chosen a fund of funds managed by JPMorgan Asset Management, following an asset allocation review conducted by its consulting firm, Lane Clark & Peacock. Hoping to diversify and generate stronger returns, the scheme is making its maiden investment in hedge funds, with Triton Capital Management. 430 43 117 6 * Ongoing searches for and recent allocations to hedge funds or funds of hedge funds by institutional investors, as reported by iisearches.com in February. MARCH 2008 • INSTITUTIONAL INVESTOR’S ALPHA • 19 http://iisearches.com
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