The Massachusetts Pension Reserves Investment Management Board hired BlackRock and Bridgewater Associates to manage $360 million each in global inflation-linked bonds with a commodities overlay. The move will allow the $37.3 billion pension fund to diversify the inflation hedge provided by the fund's TIPS portfolio - currently 5% of total assets - while providing its first exposure to commodities, said CIO Stan Mavromates at a board meeting today. Funding will come from reducing the TIPS portfolio, which is managed by Barclays Global Investors.
Both portfolios call for active management of the underlying bonds, but BlackRock's commodities overlay will be passive, and Bridgewater's will be actively managed. BlackRock's fee will be 15 basis points, and Bridgewater's, 44 basis points. Having an active and a passive commodities overlay will allow staff to compare performance, which could eventually lead to a decision to go one way entirely, said Executive Director Michael Travaglini. Depending on PRIM's experience, the fund could opt to move assets from domestic equities to commodities in 2006, said state Treasurer Timothy Cahill.
Only five money managers responded to PRIM's June 13 RFP - the other firms were PIMCO, Wellington Management and Western Asset Management - suggesting it's a relatively new area in the industry, staff members said.