Illinois State Board drops Grosvenor Capital over fees

Updated with correction, Oct. 2, 2012

Illinois State Board of Investment, Chicago, terminated Grosvenor Capital Management, which managed $237 million in a long/short hedge fund of funds for the board, after negotiations to reduce fees ended without an agreement, said William R. Atwood, ISBI executive director.

The $11.4 billion ISBI reallocated the proceeds equally to Rock Creek Group and EnTrust Capital, raising their existing hedge fund of funds portfolios to $400 million and $385 million, respectively.

Rock Creek, EnTrust and Mesirow Advanced Strategies, ISBI’s other hedge fund-of-funds manager which manages $250 million, all agreed to lower their fees to 70 basis points each from 78 basis points.

Grosvenor agreed to reduce its 76 basis-point fee to 75, Mr. Atwood said.

Rock Creek and EnTrust, in turn, agreed to lower their fees to 67 basis points each for getting the increased allocations, Mr. Atwood said.

Performance of all four managers was “well above benchmark,” Mr. Atwood said.

In other actions, ISBI retained THL Credit to run $166 million in bank loans. ISBI issued an RFP to search for bank loan managers after the previous manager, McDonnell Investment Management’s Alternative Credit Strategies group, was acquired by THL, Mr. Atwood said.

Also, ISBI hired Northern Trust Global Investments to manage U.S. small-cap core, U.S. midcap core and international core index equity fund options for the $3.3 billion Illinois State Employees’ Deferred Compensation 457 Plan, Springfield. The move by ISBI, fiduciary for the 457 plan, raised plan’s the investment options to 18, Mr. Atwood said. The hiring was the result of a search begun earlier this year.

Marquette Associates, ISBI’s investment consultant, assisted in the hedge fund-of-funds fee negotiations and the bank loan and 457 searches.