Prodded by hedge funds of funds' double layer of fees, the number of pension funds electing to build rather than buy is on the increase.
The US$26 billion Ontario Municipal Employees' Retirement System, Toronto, and the $40 billion Virginia Retirement System, Richmond, are two of the latest to staff up internal departments that will make direct investments in hedge funds. Officials from both funds say fees and a desire to establish direct relationships with managers are prime motivations to move from fund-of-funds strategies.
They are not the first to eschew the fund of funds middleman — larger endowments, foundations and a few big pension funds have been doing so for years. But they are part of an accelerating trend, said hedge fund consultant Carrie McCabe, president and chief executive officer of McCabe Associates LLC, New York.
Ms. McCabe is working with a few "Fortune 10" corporate pension funds setting up internal hedge fund departments. She said she has had many inquiries from other plan sponsors looking to do the same. Ms. McCabe declined to name any of the funds.