Institutional Investor's Alpha Magazine - July/August 2008 - (Page 18)

Pension Corner ening economy by cutting its discount rate, and the market instability has persisted. But rather than seeing his timing as a curse, Gilbert says it’s a stroke of luck. “Out of crisis came opportunity,” he says, explaining that the endowment has managed to take advantage of the credit tumult by investing in potentially undervalued distressed debt. Of course, it helps too that endowments by deﬁnition are geared toward the long term. “As an endowment, you’re not measured on your daily performance,” notes Gilbert, who is also upbeat about one of the biggest differences between his new job and the old one: the enormous disparity in the amount of assets under management. “Smaller investments here have more impact,” he says. “When you’re dealing with a $1 billion fund, a couple of million dollars can make a big difference.” Richmond Retirement System P hilip Langham wants to show the Richmond Retirement System the true meaning of alternative investments. Though the Virginia pension fund, which has $540 million in assets, ﬁrst invested in a fund of hedge funds several years before Langham joined as executive director in March 2007, he says the fund of funds didn’t do alternative investments justice. Langham has since pushed an expansion into absolutereturn funds and other alternatives. “When I arrived we were invested with K2 Advisors, which is a hedge fund manager, but it’s a directional hedge fund manager that MANDATES Despite barely breaking even the ﬁrst ﬁve months of 2008, hedge funds remain an attractive investment option for institutional investors. The New Jersey Division of Investment, for one, has doubled the alternatives allocation of its $80.1 billion portfolio during the past year, to 11 percent. Below are details of its most recent allocation, as well as those of other investors with a similar mind-set. SEARCHES* Investor BorgWarner Essex Regional Retirement Board United Nations Joint Staff Pension Fund Assets ($ millions) $ 335 295 Mandate amount ($ millions) $3 14 Details The scheme will invest 1 percent in hedge funds after the completion of its asset studies in 2009. The Essex County, Massachusetts, system has issued a request for proposals for a fund-of-hedgefunds manager. The system intends to invest in currency hedge funds. Part of the mandate will be funded by decreasing its ﬁxed-income exposure by 1 percent. 41,000 750 ALLOCATIONS* Investor Colorado Fire & Police Pension Association New Jersey Division of Investment Assets ($ millions) $ 3,500 Mandate amount ($ millions) $57 Details After increasing its alternatives allocation, the pension plan committed $57 million to newly hired manager GAM. The fund has committed $75 million to Ironbound Capital Management as part of its strategy of having $8.8 billion in alternatives, up from $4.5 billion one year ago. The scheme committed $35 million to Sandell Asset Management’s Castlerigg Partners. 80,100 75 New Mexico Public Employees Retirement Association 523 35 * Ongoing searches for and recent allocations to hedge funds or funds of hedge funds by institutional investors, as reported by iisearches.com in June. we measure against the Standard & Poor’s 500 — not necessarily a true alternative to the equity positions that we had,” he explains. “By adding the nondirectional hedge funds, we’re hoping to increase that alternative space.” Langham came to Richmond from the $5 billion Retirement Administration Agency in Fairfax County, Virginia, where he was deputy director supervising the daily operations of Fairfax’s three retirement systems. When he joined, the pension fund was allocating 5 percent of its assets to real estate investment trusts, which accounted for the whole of its alternatives portfolio (the K2 directional fund of hedge funds fell under the U.S. equity umbrella). Because he wanted to ﬁnd a way to hedge against risk in a shaky equities market, Langham focused on introducing a wider array of alternatives. “We’re looking for less risk and higher returns than we currently have,” he says. “It’s actually higher risk to be straight U.S. equity, international and ﬁ xed income than it is to invest in alternatives, because the alternatives balance against those other assets.” Langham hopes that alternatives will do more than just add a protective balance. He expects that they will also boost returns. With Darien, Connecticut–based investment consulting ﬁrm Rogerscasey, the Richmond fund conducted an asset-liability study that ended in March. By late April, Langham had drawn up a new portfolio allocation, which displayed a substantially beefed-up alternatives portfolio: a 14 percent overall allotment that is divided among real estate (4 percent), private equity (5 percent) and nondirectional hedge funds (5 percent). The remainder of the portfolio consists of a 37 percent allocation to U.S. equities, 17 percent to international equity, 30.5 percent to ﬁ xed income and 1.5 percent to cash. The hedge fund mandate is evenly split between two fund-of-funds managers: New York–based Cadogan Management and Summit, New Jersey–based Pine Grove Associates. (Richmond still has 2.3 percent of its equity allocation with K2.) Langham says that funding the private equity slot will be a slower process, especially since the priority is to hire a new consultant to replace Rogerscasey, whose contract expired in June. The ﬁ rm has served Richmond since 1994, and Langham says the switch is a matter of due diligence, meant to see if another consultant wouldn’t be a better ﬁt (Rogerscasey was invited to reapply). — K.G. 18 • INSTITUTIONAL INVESTOR’S ALPHA • JULY/AUGUST 2008 http://iisearches.com

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

Institutional Investor's Alpha Magazine - July/August 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Mr. Big Goes Small The Good Guys: Adopt This School! Interview: Man's Great Hope Cover Story: The Gentleman Activist Strategies: The New Bankers Profile: Staying Alive Research Center: The Best of the East The Asian Sensations Alpha Bytes: Into the Light Unhedged: Commentary: Speculating on Washington

Institutional Investor's Alpha Magazine - July/August 2008

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