California bill would keep some info confidential

SACRAMENTO, Calif. — California state Sen. Joe Simitian is sponsoring an amendment that would allow public institutions — including the University of California, Oakland — to keep some data about their alternative investments confidential. The details are still being discussed, said Stephan Blake, chief consultant to the joint committee on the master plan for education, chaired by Mr. Simitian.

One concern is that the state law requiring disclosure of confidential information makes it difficult for funds to invest in venture capital, which could compromise returns over the long term, Mr. Blake said. The bill, initially introduced in mid-February, will go into committee hearings later this month.

"We support the effort to provide an exemption for certain information that would balance the public's right to know with the university's ability to participate in these high-performing investments," said Trey Davis, director of special projects at the UC system. The UC retirement plan has $42 billion in assets, with $654 million in private equity.

NEW YORK — Dow Jones Indexes expanded the coverage of the Dow Jones Composite REIT index to include the float-adjusted market capitalization of all publicly traded U.S. real estate investment trusts. The Composite REIT index formerly accounted for 95% of the market.

SACRAMENTO, Calif. — CalSTRS entered into a joint venture with First Industrial Realty Trust to invest in U.S. industrial property. The California State Teachers' Retirement System, Sacramento, is expected to contribute up to $300 million, and First Industrial will contribute $33 million in equity.

The venture is expected to have a capitalization of 35% equity and 65% debt. CB Richard Ellis advised the $125 billion pension fund on the venture. JPMorgan Chase Bank provided a $100 million credit facility to the new venture.

BOCA RATON, Fla. — Hedge fund managers are confident that returns will remain steady or increase in 2005, according to a survey of attendees of the GAIM USA industry conference in January.

Rocaton Investment Advisors, which conducted the survey, found that 80% of managers were optimistic about hedge fund returns, and 10% predicted returns over 10% in 2005. Despite the sunny outlook, 57% of those surveyed said "performance mediocrity" is the biggest challenge to the hedge fund industry.

More than half (57%) of conference attendees said they expect hedge fund fees to decrease in the next 12 months. Most of those surveyed (89%) expected flows into hedge funds to increase, although 35% rate the amount of information available about hedge funds as only "adequate."

Forty-eight percent of respondents said hedge funds of funds are the best way for new investors to enter the asset class, while 17% recommended direct investment.

David Katz, founding partner of Rocaton, said in a statement that 32% of survey respondents view hedge funds as a separate asset class, 13% view them as part of a portable alpha strategy and 12% regard hedge funds as equity substitutes.

LONDON — MSCI launched the MSCI Hedge Invest Strategy indexes on March 17. The series of eight investible indexes is based on the strategy subdivisions of the composite MSCI Hedge Invest index: systematic trading, discretionary trading, event-driven and merger arbitrage, long bias, variable bias, equity non-directional, convertible and equity arbitrage, and fixed income.

More than $3 billion has been invested in products linked to the composite MSCI Hedge Invest index.

MINNEAPOLIS — Cargill Value Investment, the money management unit of Cargill Inc., closed the $550 million North American Real Estate Partners fund, which invests in U.S. and Canadian commercial real estate properties, according to a news release. The fund, which targets institutional investors, had placed more than 20% of its commitment.

DES MOINES, Iowa — Iowa Public Employees' Retirement System will not substantially increase its private equity allocation to decrease its unfunded liability, rejecting the approach as too risky, according to a joint report by CIO Donna Mueller and the system's investment board and benefits advisory committee.

According to the report, the system would need an 11% return on its investments every year through 2014 to address its unfunded actuarial liability, which was $2.18 billion as of June 30, up from $1.87 billion a year earlier. "The highest expected 10-year return for any asset class is 11% for private equity, the highest risk class," according to report. The system has 6% of its $17.3 billion in assets allocated to private equity as of Sept. 30. "Investments alone cannot reverse the trend of increased debt," Ms. Mueller said in the report.

The fund returned 13.78% for the 12 months ended June 30. By comparison, its custom benchmark returned 14.55% for the same year; its peer group, the Trust Universe Comparison Service of public pension funds with more than $1 billion in assets, earned 15.88%, according to the report. IPERS' 10-year average annual return was 10.27%, ahead of both its benchmark and peers.

The system asked the state Legislature to increase the contribution rate four percentage points over the next four years. The rate, set by law, is 9.45%, split 60% by employer and 40% by employee. It hasn't been raised for regular members — comprising 96% of the system — since 1979. The system also rejected a cut in benefits as ineffective because benefits already earned cannot be curtailed.

"According to the 2004 actuarial valuation, assets will not support liabilities if changes are not made," the report said. It blamed the increasing underfunding on poor investment markets and benefit increases.

ARLINGTON Va. — More venture capital firms exited their portfolio company investments through mergers and acquisitions than taking the company public in 2004, according to National Venture Capital Association data. Through 2004, 333 companies were purchased. Overall, $15.1 billion from acquisitions accounted for 57% of the total dollars returned to venture investors in 2004 through exits. In contrast, 93 IPOs produced $11 billion in revenue for venture capital investors, the study revealed.

A record number of hedge funds — an estimated 1,406 — were launched in 2004, according to data from Hedge Fund Research. The number compares with 1,156 funds launched in 2003, 1,222 funds in 2002 and just 693 in 2001. The net number of new hedge funds was 1,139, after factoring in the 267 funds that were liquidated last year. The attrition rate in 2004 was 4.24%. The additions and subtractions bring the total number of hedge funds active on Dec. 31 to 7,436, according to HFR's estimates, which are derived from its database of more than 8,000 hedge funds.

Meanwhile, the liquidation rate among the 800 hedge funds in the Hennessee Hedge Fund index remained at 5.3% for 2004, the same as 2003. In fact, the attrition rate for hedge funds with more than $10 million in assets under management that are liquidated has been fairly consistent over time at 3.8% in 2002, 4.3% in 2001, 6.4% in 2000 and 4.7% in 1999, according to company data.

"It has been reported that hedge funds have a 15% failure rate. … Our statistical findings using the Hennessee Hedge Fund (indexes) do not support that," Charles Gradante, managing principal, said in a statement.