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

Pension Corner move cash rapidly between asset classes in an effort to generate alpha. Looking forward, Curtis doesn’t expect to make big changes in the portfolio’s allocation in response to the market meltdown and says his focus lies beyond the short term. “We’re interested in looking at 30-year numbers and 30-year liabilities,” he explains. “We won’t be reacting too quickly to market changes.” Brockton Contributory Retirement System A fter going back and forth for years on the benef its and drawback s of hedge funds, managers at Massachusetts’ Brockton Contributory Retirement System thought they had decided once and for all not to go there. But that was before this year’s market turbulence ravaged the $317 million fund. Now, owing to a paucity of better September ranked as the worst month for hedge fund returns since 2003. The –7.85 percent return of the Morningstar hedge fund index that month pulled the third-quarter 2008 return down to –13.15 percent, compared with the previous quarter (the index had returned –2.96 percent for August and –2.88 percent for July). Below are some funds that are banking on a quick hedge fund turnaround. SEARCHES* Assets ($ millions) $ 985 Mandate amount ($ millions) $39 MANDATES Investor London Borough of Croydon Pension Fund Details The fund approved a £25 million ($39 million) fund-ofhedge-funds mandate. It is looking to hire a pooled fund with low target beta and volatility. The contract is expected to run for three years with a possible three-year extension, subject to performance review. Mercer is running the search. This White Plains, New York–based independent retirement program provider is seeking to reduce risk in its portfolio and will consider upping its hedge fund allocation by 2 percent, to 12 percent. A ﬁnal decision is expected during the second quarter of 2009. The source of the funding is still to be decided. The scheme is planning to make its ﬁrst alternatives investment by mid-2009 and is targeting private equity, hedge funds and infrastructure. It seeks to increase diversiﬁcation and boost returns. The mandate size has not yet been determined. Pentegra Group 2,100 42 Scottish Borders Council Pension Fund 461 NA ALLOCATIONS* Mandate amount ($ millions) $10 Investor Ann Arbor (Michigan) Employees’ Retirement System California Public Employees’ Retirement System Assets ($ millions) $ 422 Details The plan has selected BlackRock Multi Manager Partners and HRJ Capital to manage $5 million each in a fund-of-hedge-funds portfolio. The U.S.’s biggest public pension fund has invested $45 million in the UBS O’Connor Global Fundamental Equity Market Neutral Fund. The fund invests in consumer durables, ﬁnancials, energy, health care and technology. The Dublin-based insurance company allocated 10 percent of its assets to BlackRock Investment Management in its maiden hedge fund allocation. The mandate was funded from its equity portfolio. 232,100 45 Royal Liver Assurance Pension Scheme 272 27 * Ongoing searches for and recent allocations to hedge funds or funds of hedge funds by institutional investors, as reported by iisearches.com in October. options, Brockton has put funds of hedge funds back on the table. “The last ten months have been pretty rugged,” says Harold Hanna, the retirement fund’s executive director since the late 1980s. “We’re looking for some wild ideas on how we can recover.” The fund, based in Brockton, a city of 95,000 about 25 miles south of Boston, started thinking about funds of hedge funds even before it was big enough to invest in them. All of the public pension funds in Massachusetts are regulated by the Public Employee Retirement Administration Commission, which mandates that a system have at least $250 million under management before it invests in hedge funds. Although Brockton didn’t reach that mark until two years ago, Hanna says directors of the fund had been batting around the topic since the early 2000s in anticipation of the day it could invest. But when the Brockton fund, which is for retired municipal workers, ﬁ nally reached the requisite size, it got cold feet. It had raised $100 million by issuing pension obligation bonds — debt instruments that were distributed to underwrite pension liabilities — and found itself 90 percent funded. It was in pretty good shape, in other words, so Hanna and the Brockton board of directors agreed that funds of hedge funds posed more risk than the fund needed. The unforgiving markets of 2008 have forced a revisiting of that decision. Brockton’s assets, which totaled nearly $400 million in January, have declined by almost a quarter; returns for the year through September were down 17.49 percent. Hanna estimates that the fund’s liabilities are now no more than 80 percent funded. In light of the difﬁcult markets, Brockton’s board voted in August to proceed with a fund-of-funds search. Equities — particularly international ones — have been the weakest performer for the fund this year, so Hanna expects any hedge fund allocation to be shifted from that asset class. But before a fund-of-funds search begins in earnest, Brockton plans to formally name a consultant. Its present adviser, Norwalk, Connecticut–based Evaluation Associates, may be re-signed, according to Hanna, but the fund may also opt to go with someone else. The Brockton portfolio is currently divided into a 48 percent allotment to domestic equity, 14 percent to international equity, 16 percent to domestic ﬁxed income, 6.7 percent to international ﬁxed income, 7.6 percent to real estate, 4 percent to venture capital and 3.7 percent to cash. “I expect there will be some major changes,” Hanna says, “but I can’t predict what they will be.” — K.G. 20 • INSTITUTIONAL INVESTOR’S ALPHA • NOVEMBER 2008 http://www.iisearches.com

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

Institutional Investor's Alpha Magazine - November 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Risk Rewarded The Good Guys: In the Here and Now Interview: Minister of Finance Cover Story: The Agony of Dan Zwirn Strategies: The Early Birds Are Awake Strategies: The Call of Shari’a Profile: Sweet Home Chicago Research Center: What Stampede? Alpha Bytes: Centralize the Data Unhedged: Commentary: Learning from the Wreckage

Institutional Investor's Alpha Magazine - November 2008

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