The relatively small hedge fund allocation likely will be increased over time as staff gains more experience with the asset class, Mr. Turk said. He said Kuhns consultants had advocated an initial hedge fund allocation of 10%, but staffers "forced them down" because they want "to get more comfortable" with the asset class. He acknowledged TRS likely will have to add staff to handle the hedge fund investments. For now, though, he and Stan Rupnik, chief investment officer, will oversee them.
TRS staff also accepted Kuhns' recommendation to wait until February to authorize an April search for real return managers offering global tactical asset allocation and strategic real asset/natural resources portfolios. Sizes of these mandates have not yet been set.
Staff at Kuhns is still studying various real return asset classes and later will present trustees with a real return structure study that will recommend specific allocations to subasset classes.
In conjunction with the newly approved asset allocation, TRS staff and the R.V. Kuhns team are conducting a full structural review of all equity allocations. The results could affect the outcome and size of open searches, such as those authorized by the board earlier this year for an active U.S. large-cap value manager and an international equity manager.
Mr. Rupnik said existing equity managers could have their allocations reduced rather than be terminated. He also said staff and the consultant might make changes to better optimize cornerstone managers, like Dodge & Cox, San Francisco, which managed $1.988 billion as of Sept. 30. The structural study might find, for example, a better complement to Dodge & Cox than Boston Partners Asset Management LP, Boston, which managed $909 million as of Sept. 30. "Boston Partners might be kept or might not be. Or we may reduce Dodge & Cox's mandate. That's what we are checking as part of the study," Mr. Rupnik said.
In other news from the Dec. 8 meeting, TRS trustees approved a $50 million investment in J.C. Flowers II LP, a financial services specialty private equity fund, and $100 million to be invested in Providence Equity Partners VI, a specialty media and communications private equity fund. Funding came from the plan's ongoing buildup of its private equity investments. Copper Rock Capital Partners was awarded a $50 million active U.S. small-cap to midcap growth equity mandate from TRS' emerging manager program, which is managed in a Standard & Poor's 500 index account by RhumbLine Advisers, Boston, that will be reduced to $449 million.
