Investment managers are scouring the globe to boost returns in their private equity, real estate and hedge fund portfolios, and their investors are willing to follow them.
"This is a pure alpha play," said consultant K.C. Connors, vice president of Jeffrey Slocum & Associates Inc., Minneapolis. Investors need "to beat the bushes and turn over rocks to find good managers and good returns," she said.
Some of the U.S. institutions aiming for more international alternatives exposure include:
• New Jersey Division of Investments, Trenton, which is expected to invest a portion of its 13% alternatives allocation in international buyout funds, said Cesar Baez, directory of alternative investments, who is leaving at the end of the month. The board will not decide the percentage until the fall, Mr. Baez said. The New Jersey Division of Investments directs investment of $69.7 billion of pension assets.
• GE Asset Management Inc., Stamford, Conn., which is considering adding dedicated non-U.S. hedge fund managers, said David Wiederecht, vice president, alternatives. Mr. Wiederecht said some of the 15 hedge fund managers that manage 22 different strategies for GE are moving offshore now. GE has been a direct hedge fund investor since 1992 and has allocated about 4% of the pension trust's total assets to absolute return strategies. The firm manages the $48 billion General Electric Co. Pension Trust
• The $33 billion Los Angeles County Employees' Retirement Association, Pasadena, Calif., which has invested one-quarter of its 7% allocation to private equity and venture capital in international, said Christopher Wagner, senior investment officer, alternative assets. The plan's international alternative investments are diversified by country and economies, mainly in Western Europe, where local economies are fairly well developed, he said.
• Orange County Employees Retirement System, Santa Ana, Calif., where officials likely will examine international alternative investments, probably later this year, said Keith Bozarth, chief executive officer of the $5 billion fund. None of its 15% total target allocation to real estate and alternatives is invested internationally.
On the money management side, TPG Ventures — a subsidiary of Texas Pacific Group, Forth Worth, Texas, in which the $192.6 billion California Public Employees' Retirement System, Sacramento, owns a $60 million stake — is investing a portion of three venture capital funds totaling $650 million in India and China.
TPG executives plan to raise new life sciences and consumer goods venture capital funds that also will invest in India and China, said Vivek Paul, partner. The TPG Ventures deal is just one of CalPERS' international alternative investment initiatives.
Several hedge fund managers used by the University of Chicago have been invested in international securities for some time," said Matthew H. Stone, assistant vice president and director of absolute return strategies. The $4 billion endowment has about 18% invested in absolute return strategies.
Mr. Stone said more and more U.S. hedge fund managers are setting up offices abroad; many are moving beyond London, to Hong Kong, Tokyo and Singapore, for example. To be credible though, hedge funds must create a substantial team with in-depth local knowledge because "the legal environment in emerging markets is so much more uncertain and less defined than in the U.S.," he said.
Mr. Baez said strong institutional demand for international exposure in the private equity, venture capital, real estate and hedge fund arenas is spurring money managers to develop new products. "This is just the tip of the iceberg," he said.