Institutional Investor's Alpha Magazine - December 2008 / January 2009 - (Page 17)

he says. “As we move along we will surround those core positions with more strategy-speciﬁc niche managers.” Kaplan originally envisioned the endowment’s next step as a move into long-short equity hedge funds, but the seize-up in the credit markets sidelined that plan because other plays looked better. “We just recently decided to move our distressed-debt search up the priorities ladder,” he notes. “The opportunity there is just so great that it should supersede all other searches.” It was this very ability to be opportunistic and take advantage of timely prospects that Kaplan had in mind in May, when he proposed the new allocation breakdown and helped put together a new Web site to go along with it. The password-protected site, meant solely for Drexel investment committee members, features articles, white papers and memos that explain what Kaplan and his staff are looking into. The Web site also includes an “action items” section, which lists potential portfolio changes and gives committee members up to ﬁve days to dissent. If no objections arise, Kaplan and his team move forward. “It allows us to be a lot more proactive and make changes when we feel they should be made — and not have to wait for a formal quarterly meeting.” 30 (versus 0.22 percent and 5.17 percent for the S&P 500). Slade concedes that because of heightened liquidity concerns, hedge funds are a less-than-ideal investment at the moment. This is especially so for an organization like Pentegra, which pools clients’ assets and liabilities into one master fund and manages the collective investments to the overall liability. The ﬁrm must be prepared to meet redemption requests immediately because member companies can, and sometimes will, pull out of the plan without warning. Investments in stocks and bonds are usually more easily redeemed than those in hedge funds, Slade notes, but he adds that at the end of the day, hedge funds are worth it. “Certainly, liquidity is a concern,” he says. “But the return objective we have for hedge funds somewhat offsets that.” — K.G. T Pentegra Retirement Services he enactment in August 2006 of the Pension Protection Act brought an added measure of security to employees’ pension investments, but the law has taken on a different hue lately in light of seemingly interminable waves of market volatility. The act’s main provisions require companies to value investments based on current worth — the mark-tomarket rule — and to make payments to plans that are underfunded as a result. Many fund administrators say that the law puts them in an impossible position. One retirement plan provider, Pentegra Retirement Services, is ramping up its fund-of-hedge-funds exposure as part of its effort to adapt. “That’s really what’s driving the change,” says Frederic Slade, senior investment analyst at the White Plains, New York–based ﬁrm, which is an independent program provider that manages about $2 billion in deﬁned beneﬁt plans for roughly 250 employers (mostly regional banks and credit unions). Founded in 1943, Pentegra ﬁrst ventured into hedge funds in 1990 by investing 2 percent of its assets in the industry. That allocation has since grown to 10.3 percent, with assets divided among seven funds of hedge funds. Two of the funds collectively command about half of Pentegra’s $200 million allocation: One is managed by New York–based Barlow Partners, and the other by Boston-based State Street Global Advisors’ Absolute Return Fund. Slade says the fund plans to hire at least one more fund-of-funds manager this winter. The rest of the Pentegra portfolio is divvied up among bonds (27.5 percent), equities (20.3 percent), enhanced indexed equities (13.5 percent), indexed bonds (11.5 percent), cash (9.6 percent), European, Australian and Far East equities (5 percent), real estate (2 percent), venture capital (0.2 percent) and private equity (0.1 percent). This breakdown delivered a 10.0 percent loss for the ﬁrst nine months of 2008 (by comparison the Standard & Poor’s 500 index lost 19.29 percent). Annualized three- and ﬁve-year returns were 2.70 percent and 5.10 percent, respectively, through September London-based Morgan Stanley Research predicts that by the end of 2008, worldwide hedge fund assets under management will have contracted by 35 to 45 percent from their peak of $1.93 trillion at the end of June. But in a note of optimism, the researchers also predict that hedge fund assets will be back up to $1.62 trillion by the end of 2009. The institutional investors below share a similarly optimistic outlook for the industry. SEARCHES* Investor Mass Transit Railway Corp. Retirement Scheme University of Arizona Assets ($ millions) $ 774 Mandate amount ($ millions) Details NA The Hong Kong–based, HK$6 billion ($774 million) scheme is considering making a foray into alternatives by investing in funds of hedge funds. The initiative is subject to market conditions. Speciﬁcs have not been set. The endowment for the Tucson-based school plans to seek new managers for global hedge fund strategies. It wants long-short equity and event-driven strategies. No amount has been decided on yet. The scheme plans a maiden investment in funds of hedge funds and will seek a manager in April 2009. MANDATES 600 NA Ventura County (California) Employees’ Retirement Association ALLOCATIONS* Investor Austin (Texas) Police Retirement System Nobel Foundation 2,300 NA Assets ($ millions) $430 436 Mandate amount ($ millions) Details $5 2 The fund committed $5 million to Excelsior Capital to be managed in a volatility-arbitrage-strategy hedge fund. The Stockholm-based foundation that awards the Nobel Prize is gradually increasing its allocation to alternatives from 16 percent to 20 percent. It has recently invested in York Capital Management’s Credit Opportunities Trust. * Ongoing searches for and recent allocations to hedge funds or funds of hedge funds by institutional investors, as reported by iisearches.com in November. DECEMBER 2008/JANUARY 2009 • INSTITUTIONAL INVESTOR’S ALPHA • 17 http://www.iisearches.com

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

Institutional Investor's Alpha Magazine - December 2008 Contents Letter from the Editor Longs & Shorts Inside the Trade Pension Corner The Good Guys Interview: Stanley Fink Cover Story: The New Regulatory Reality United States: The Usual Suspects Europe: Flirting with Unity Asia-Pacific: What Asian Contagion? In Theory In Focus Strategies Research Center Alpha Bytes Unhedged Commentary

Institutional Investor's Alpha Magazine - December 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.