Institutional Investor's Alpha Magazine - March 2009 - (Page 18) Pension Corner whatever we’re looking at,” he explains. “If I don’t know how managers invest, I don’t know how I can invest in them.” He notes that because of staffing constraints, the next few hedge fund additions at the pension system will most likely be made through funds of funds, which require less in-house involvement than do direct investments. “We want to learn and improve our insight and understanding of the marketplace,” Perry asserts, “and we believe that partnering with funds of funds would probably be the easiest way to facilitate that.” He concedes that the Madoff scandal, which ensnared thousands of investors — individual and institutional — was fueled in large part by a handful of funds of funds, but he sees malfeasance as a perennial hazard. “I don’t believe anyone can ever be 100 percent certain they’ll be immune from fraud,” Perry says. Insult to Injury at a California Fund I SEARCHES* Investor Detroit Police & Fire Retirement System Assets ($ millions) $3,000 n mid-December a letter tacked a bitter ending onto an already dismal year at the Tulare County Employees’ Retirement Association. Geneva-based Union Bancaire Privée, one of the two funds of hedge funds with which the $710 million system had invested, MANDATES Pension funds in the 11 countries with the biggest pension markets saw a collective $5 trillion in assets disappear in 2008, according to a recent Watson Wyatt Worldwide report. Coupled with steadily increasing liabilities, that drop meant a 29.4 percent fall in the systems’ funding ratios, compared with the previous year. Below are some funds around the world that are seeking to plug that gap with new allocations to hedge funds. Mandate amount ($ millions) Details $ 50 In the next year, as one fifth of its plan to build five separate emerging-manager portfolios, the system will seek out alternative emerging managers, with a focus on absolute-return and long-short strategies. The system, which currently has about 1 percent of its assets in hedge funds, plans to start looking for hedge funds to fill out the rest of its 4 percent absolutereturn allocation. The Akron, Ohio–based health care provider is reviewing alternatives strategies and may increase its hedge fund commitments. The move may be made by the third quarter. New Hampshire Retirement System 4,200 125 Summa Health System 80 NA ALLOCATIONS* Investor ABSA Group Pension Fund Assets ($ millions) $ 1,474 Mandate amount ($ millions) Details $74 The Johannesburg, South Africa–based scheme has increased its hedge fund allocation to 8 percent from 3 percent and has hired two new managers: TriAlpha Asset Management, which accounts for 4 percentage points of the increase, and FirstRand Alternative Investment Management, which fills out the remainder. The Stockholm-based system hired Jupiter Asset Management for 60 million Swedish kronor ($7 million) in fund-of-hedge-funds investments. The public pension fund has approved initial commitments totaling about $97 million to: Brookside Cayman, HealthCor Offshore, Karsch Capital Management, Miura Global Fund, Regiment Capital and Visium Balanced Offshore Fund. The investment in any given fund will be capped at $30 million. Arkitekternas Pensionskassa School Employees Retirement System of Ohio 491 14 10,900 97 * Ongoing searches for and recent allocations to hedge funds or funds of hedge funds by institutional investors, as reported by iisearches.com in January 2009. wrote to regrettably inform Tcera that it was among the victims of Bernard Madoff ’s purported Ponzi scheme. The Visalia, California–based pension plan’s share of the losses was about $1.13 million. The hedge fund that linked Tcera to Madoff was J. Ezra Merkin’s Ascot Partners, one of UBP’s underlying funds and one of the key feeder funds to Madoff. (Ascot invested — and presumably lost — $2.5 billion with Madoff, much of it pension and endowment money.) Because of that connection and the fund of funds’ resulting loss, UBP explained, it would allow investors until January 23 to file for redemptions that would be honored at the end of March. Tulare County, which is just north of Los Angeles, wasted no time filing a request to redeem its full $20 million mandate with UBP, though retirement administrator David Kehler says Tcera may rescind the request before spring, but only if UBP can provide satisfactory answers to Tcera’s many questions. “Why were there other managers that seemed to shy away from investments that involved Bernard Madoff, but UBP felt comfortable moving forward?” he asks. “How did this get missed?” The Madoff scandal came in a year in which Tcera’s assets shrank by 28.7 percent. It also coincided with the final stages of an in-house asset-liability study of the retirement system. Assets are currently divvied up among seven classes: domestic equity (27.8 percent), international equity (14.6 percent), fixed income (31.7 percent), real estate (17.1 percent), private equity (2.9 percent), hedge funds (5.7 percent, with these assets split equally between fund of funds managed by UBP and Aetos Capital) and cash equivalents (0.2 percent). Hedge funds haven’t lost all their appeal for Kehler, who assumed his role at Tcera 11 years ago after a stint in the benefits division of the Orange County Employees Retirement System. He notes that depending on the results of the forthcoming study, it’s conceivable that Tcera would even increase its allocation. “I don’t think we’re totally soured on hedge funds simply because of what has taken place with UBP,” says Kehler, who adds that he and Tulare County’s nine-member retirement board will nonetheless approach the subject with a fresh air of caution. “We’re going to have to feel comfortable that the asset class as a whole is able to provide due diligence and stronger transparency.” — K.G. 18 • INSTITUTIONAL INVESTOR’S ALPHA • MARCH 2009 http://www.iisearches.com
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