North Carolina Retirement Systems to increase hedge fund investments

North Carolina Retirement Systems, Raleigh, will be searching for hedge fund managers in which to invest billions of dollars in new mandates, confirmed Julia Vail, spokeswoman for the $71.8 billion system.

Last June, the North Carolina General Assembly approved changes to the retirement system's allocations, allowing the fund to invest up to 6.5% of plan assets in hedge funds within the global equity portfolio, which currently has a 43% allocation. It currently has $2.44 billion, or 3.4% of plan assets, invested in hedge funds, Ms. Vail wrote in an e-mail.

The fund is looking to add 0.5% of plan assets, or currently $358.5 million, into credit-related hedge funds over the next one to two years as well as increasing the equity hedge fund allocation to 6% of assets, or currently $4.3 billion, over the next three to five years, mainly in long/short strategies.

The system will also look for opportunistic commodity-related hedge funds, but there is no defined target, Ms. Vail said.

“The goal of utilizing the additional flexibility to invest in hedge funds is completely focused on reducing portfolio risk without compromising returns,” Ms. Vail said. “The new authority allows use of new assets in addition to what is currently invested. The (state treasury department) will not have a separate hedge fund allocation, but will use hedge funds throughout the portfolio to reduce risk where authorized.”

Funding will come from reducing long-only investments.

No RFPs will be issued; managers will be selected on an “as-needed basis” Ms. Vail wrote. There is no predetermined number of managers it will look to hire. Details on how managers will be chosen was unavailable.

The legislation also allowed the retirement system to increase by 2.5% of plan assets its investment in broadly diversified, non-equity-based hedge fund strategies, but Ms. Vail said most of this will be in private equity, which has a 7.5% limit.

Separately, North Carolina Retirement Systems returned 3.82% for the fourth quarter and 2.12% for 2011, state Treasurer Janet Cowell reported Friday.

The system's fixed-income portfolio returned 1.77% for the quarter and 10.82% for the year; the public equity portfolio returned 7.62% for the quarter and -6.99% for the year.

Real estate had gains of 0.48% for the quarter and 12.25% for the year. The alternatives portfolio returned -0.23% for the quarter and 11.85% for the year.

The credit portfolio returned -1.4% for the quarter and 2.22% for the year, while the inflation portfolio returned 0.29% for the quarter and -5.54% for the year.