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Two U.S. retirement funds to allocate $330m to L/S equity hedge funds

Thursday, February 18, 2010
Opalesque Industry Update – Two American retirement systems have announced plans to allocate a total of $330m to long/short equity hedge funds, reported

The San Bernardino Country (California) Employees’ Retirement Association is looking for a long/short equity hedge fund manager for its first-ever $150m allocation into hedge funds, the first report said.

Investment officer Don Pierce said that the $5bn retirement system has tasked its investment consultant NEPC to search for a manager. The new allocation is part of the system’s overall move to active equity management.

And the Milwaukee County Employees’ Retirement System appointed K2 Advisors and ABS Investment Management to manage its long/short equity funds of hedge funds, another report indicated. Retirement system manager Gerald Schroeder said each manager would be given $90m each or 10% of the system’s assets.

It is also the first foray of the $1.8bn fund into hedge fund investment.

Schroeder said the fund would come from rebalancing from overweight asset classes such as fixed income, which was at 44.1% of total assets as of Dec. 31, and domestic equity, 30.9% as of the same date.

The surge in hedge funds allocations by institutional investors was predicted by industry tracker Preqin in its December 2009 report, which said that hedge fund managers could rely on institutional investors when seeking new capital this year.

Preqin’s latest report in January, which surveyed 60 institutional investors, showed that the number of institutions investing in hedge funds through separate or managed accounts could more than double in 2010. At least 16% of those surveyed said they already invested in hedge fund separate accounts and an additional 23% are considering making their first separate account investment in 2010.

Only this week, it was reported that Persian Gulf Arab investment institutions were expected to shore up allocations to hedge funds in the coming months as InvestCorp Bank BSC of Bahrain, which manages $12bn, has signified intentions to raise its hedge fund portfolio.

Australia’s Future Fund also announced early this month that it allocated some $4.2bn to three hedge fund managers; Ochs Ziff, a US-based multi-strategy manager, BlackRock Alternative Advisors, which has various hedge fund strategies managed from several countries including the former Quellos Capital Management, and Brevan Howard, a UK-based alternatives manager.

Although institutional investors are now more willing to invest in hedge funds, they are also demanding more transparency and control over their portfolio. The $200bn California Public Employees’ Retirement System (Calpers), one of the largest and best-known institutional investors, wants more control over the hedge funds it uses. Calpers said it will no longer allow to pool money with other investors in the conventional fund scheme. It also wants these managers to trade directly for Calpers’ individual accounts, an arrangement that would allow the pension fund to see and control all the securities the manager picks on its behalf. – KM –

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