Institutional Investor's Alpha Magazine - April 2008 - (Page 20)

Pension Corner portable alpha — initially, about C$150 million — into a fund of hedge funds, then port the return onto half of the ﬁ xed-income allocation, which currently makes up 30 percent of the total portfolio (equities account for the other 70 percent). With the help of Chicago-based Aon Consulting, the board has narrowed down the list of prospective fund-of-funds ﬁrms to a handful of ﬁnalists. Hires won’t occur until May at the earliest. Campbell ﬁgures that for the trust to preserve its assets in perpetuity — as was the intent when it was created by the Canadian government 15 years ago — it needs a consistent annual return of 9 percent. That would allow it to pay out 4 percent of its yearly earnings to its main beneﬁciary organization, Nunavut Tunngavik. So far, the trust has consistently exceeded this goal: Annualized returns for the ﬁve years ended September 30, 2007, were 10.57 percent. Campbell believes the trust is well positioned to keep up that rate of return over the long haul. “When we have good markets, we’ll build up a reserve,” he says, adding that when bear markets take their turn, he expects portable alpha to lessen the blow. Peace Ofﬁcers Retirement System of Iowa on’t accuse Iowa’s Peace Ofﬁcers Retirement System of being out of its league. As the $312 million pension plan moves toward introducing hedge funds into its portfolio, Jina Lilly, the system’s investment ofﬁcer, says its size won’t be a deterrent to success. “Our size hasn’t been a factor,” says Lilly, who joined PORS three years ago, after earning an MBA at Northwest Missouri State University. “There are even some hedge funds out there that are tailored for smaller systems.” The board officially approved the hedge fund allocation only recently, though it has been discussing D MANDATES Corporate pension plans saw their funding liabilities increase by almost 8 percent in the ﬁrst quarter, marking the third consecutive quarter that they have risen, according to a recent report from UBS Global Asset Management. Below are some companies whose plans are looking to hedge funds to counter the blow of declining stock markets and bond yields. SEARCHES* Investor Computer Sciences Corp. Assets ($ millions) $2,300 Mandate amount ($ millions) Details $69 The fund is looking to invest 3 percent of assets in its maiden funds-of-hedgefunds foray. By year-end the fund plans to have increased its alternatives exposure (currently 1 percent of assets), with a focus on funds of hedge funds. The plan intends to add 3 percent to its existing 13 percent alternatives allocation, to make room for funds of hedge funds. Southern California Edison Co. 3,800 — Thomas & Betts Corp. 400 12 ALLOCATIONS* Investor Ford Motor Co. Assets ($ millions) $45,000 Mandate amount ($ millions) Details $1,000 The fund committed $1 billion to Lehman Brothers’ hedge fund portfolio, with plans to fund the allocation in stages. The system hired RMF Investment Management for its Sfr5 million ($4.56 million) hedge fund mandate. Leica Geosystems 465 5 * Ongoing searches for and recent allocations to hedge funds or funds of hedge funds by institutional investors, as reported by iisearches.com in March. the possibility for the past two years. In a meeting on January 22, it agreed to the new asset allocation, which had been recommended by its adviser, New York–based Buck Consultants. For the ﬁ rst time, the portfolio will carve out an allocation to hedge funds — 5 percent of PORS’s total assets. The rest of the revised portfolio includes a 25 percent allotment to ﬁ xed income, 25 percent to U.S. large-cap equities, 25 percent to international equities, 15 percent to U.S. small-cap equities and 5 percent to real estate. Buck Consultants expects the mix to yield an annual 9 percent, an improvement over the 8.11 percent that the portfolio returned for the year ended December 31, 2007. According to Santa Monica, California–based Wilshire Associates, public funds had, on average, a 7.43 percent return for the same period. The Des Moines–based PORS isn’t asking much of its investment in hedge funds. It’s simply hoping for some stability and protection in volatile markets. “We aren’t looking for huge returns, just returns that are less correlated to what we already have,” says Lilly. PORS, which oversees pensions for members of Iowa’s state patrol, criminal investigation division, narcotics enforcement division, ﬁre marshal’s ofﬁce and department of public safety, has an unfunded liability of about $100 million. But Lilly says that the shortfall was not the impetus to invest in hedge funds. PORS’s board isn’t looking at hedge funds that promise otherworldly returns, simply those that can offer diversiﬁcation and an ability to proﬁt in a bear market with relatively low risk — goals shared by pension funds of various sizes that elect to invest in hedge funds. David Gold, a senior investment consultant who specializes in hedge funds in London-based Watson Wyatt Worldwide’s New York ofﬁce, seconds Lilly’s claim that the size of a pension plan isn’t necessarily a factor when it comes to investing in hedge funds. “I think it all comes down to whether or not the system is sophisticated enough to understand hedge fund strategies,” he says. “Small versus large is beside the point.” — K.G. 20 • INSTITUTIONAL INVESTOR’S ALPHA • APRIL 2008 http://iisearches.com

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - April 2008

Institutional Investor's Alpha Magazine - April 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Here to Eternity The Good Guys: Voice of Hope Cover Story: The Kings of Cash Where the Money Is Into the Light Interview: Proceeding with Caution Strategies: A Convenient Truth Alpha Bytes: Village Voice Unhedged: Commentary: No Time for Complacency

Institutional Investor's Alpha Magazine - April 2008

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.