Texas Permanent set to use 2 strategic partners for $2.5 billion hedge fund portfolio

Texas Permanent School Fund, Austin, is slated to shift all of its $2.5 billion hedge funds-of-funds portfolio to two strategic partners, Blackstone Alternative Asset Management and Grosvenor Capital Management, and terminate Mesirow Advanced Strategies and GAM USA.

The moves are pending approval of the Texas State Board of Education, which oversees the management of the $25.9 billion endowment fund.

The recommendation Wednesday by its Committee on School Finance/Permanent School Fund is the culmination of 16 months of heated debate.

On April 20, the finance committee made the same recommendation to the State Board of Education, which oversees management of the fund on behalf of the Texas Education Agency, Austin, but the full board was prevented from acting because proper notice had not been posted publicly in time for a vote, according to a webcast of the meeting.

On July 20, education commissioners directed Holland Timmins, Texas Permanent's chief investment officer and executive administrator, to renegotiate fees and terms with four current hedge fund-of-funds managers. K2 Advisors was terminated, effective immediately, a webcast showed.

If commissioners buck the advice of the endowment's consultant, NEPC, as did finance committee members, Mesirow and GAM, which each manage about $330 million, will be terminated and Blackstone and Grosvenor will split the portfolio evenly.

Mr. Timmins told finance committee members that the change will reduce fees for the hedge fund portfolio to about $13 million per year from about $17 million under the current portfolio construction.

Blackstone and Grosvenor will share management of the portfolios with Permanent School Fund investment staff and will move to direct investment in single and multistrategy hedge funds.

In previous meetings, Mr. Timmins indicated that over time, internal staff will assume in-house management of the direct invested hedge fund portfolio.