Texas Permanent moves $332 million to 2 strategic partners, retains Mesirow

Texas Permanent School Fund, Austin, will terminate hedge funds-of-funds manager GAM USA in a surprise decision Friday by the Texas State Board of Education, according to a webcast of the meeting.

The $25 billion endowment fund's Committee on School Finance/Permanent School Fund on Wednesday had recommended terminating both GAM USA and Mesirow Advanced Strategies and moving all of its $2.6 billion hedge funds-of-funds portfolio to two strategic partners — Blackstone Alternative Asset Management and Grosvenor Capital Management.

But finance committee member Thomas Ratliff, who supported the original recommendation, instead successfully proposed retaining Mesirow, terminating GAM USA, and splitting GAM's $332 million evenly between Blackstone and Grosvenor at Friday's full board meeting. The board oversees the endowment fund's management.

Mesirow will continue to manage the assets in a hedge fund-of-funds portfolio.

Blackstone managed about $900 million in hedge funds-of-funds strategies as of Sept. 30, and Grosvenor managed about $1 billion. Mesirow Advanced Strategies managed $329 million in a hedge fund-of-funds strategy as of the same date.

Mr. Ratliff told fellow board members that he changed his mind about terminating Mesirow after hearing the concerns of other commissioners about putting so much money in the hands of two strategic partners. He said that in a “year or two,” if the strategic relationship partnerships work out as planned, the board might consider moving Mesirow's assets to the strategic partners for management.

The decision caps 16 months of heated debate by the finance committee and the state board about how best to restructure the endowment fund's hedge fund portfolio to move to direct investment in single and multistrategy hedge funds from funds of funds.

Blackstone and Grosvenor will co-manage their respective portfolios with Texas Permanent School Fund investment staff.

In previous meetings, Holland Timmins, Texas Permanent's chief investment officer and executive administrator, indicated that over time, internal staff will assume in-house management of the direct-invested hedge fund portfolio.

Separately, the board also approved the finance committee's recommendation to invest $75 million in AREA European Real Estate Fund IV, managed by AREA Property Partners, according to a Twitter post from Texas Education Agency staff. Due to technical difficulties, the webcast of the Nov. 16 meeting was not available. TEA oversees state education in Texas and services the State Board of Education.

Eight commissioners of the 15-member board will leave at the end of December because of retirements and the results of Nov. 6 school board elections. Patricia Hardy, chair of the finance committee, and fellow committee members Mr. Ratliff and David Bradley, were re-elected and will remain on the board.