Hartford HealthCare Systems, Hartford, Conn., plans to add a 6% allocation to private equity for its $1.8 billion in pension and endowment assets, said David Holmgren, CIO.
Funding for the allocation, a new one for the systems, will come from rebalancing domestic and international equities; no terminations are planned. The systems' policy committee will consider the move at its Feb. 27 meeting.
Mercer Hammond, the systems' investment consultant, created a shortlist of managers; the initial selections will focus on secondary funds; with other funds considered later, Mr. Holmgren said in a telephone interview. Hartford HealthCare is conducting due diligence on the managers.
Private equity will be a suballocation in Hartford HealthCare's 55% growth allocation, which also includes U.S. and international equities. Currently, 29% of total assets are in U.S. equities while 26% are in international stocks. The systems' remaining allocation is 35% risk reduced, which is hedge funds and fixed income, and 10% in inflation-hedged assets.
“We don't have a strategic allocation; we're opportunistic at best,” he said. “It's an advantageous time in the markets to formalize a policy to strategically balance the portfolio to private equity.”
Separately, Hartford HealthCare's funds returned 2.4% on investments in the fourth quarter, 60 basis points above the policy benchmark, and 14.6% for 2012, 187 basis points above its custom benchmark, according to Mr. Holmgren.
Mr. Holmgren said the strong returns were because of the funds' systematic and conservative approach to diversifying their allocations in balanced portions. “For example, by moving 10% out of long-only equities during 2011 into a broad, diversified hedge fund program, the plan was able to greatly expand the remaining long-only equities during 2012 out in the return spectrum,” he said.
Within hedge funds, the portfolio gained about 9%, compared with its 7.5% target return benchmark.