CHARLESTON The West Virginia Legislature approved a bill March 18 that would clear the way for the West Virginia Investment Management Board to invest up to 20% in alternatives including hedge funds and private equity, according to Craig Slaughter, investment board executive director. The board oversees $8.9 billion in state pension and other assets.
The bill would also permit the board to invest an additional 25% of its portfolio in real estate, another new asset class, Mr. Slaughter said.
Mr. Slaughter said current law limits investments to long-only publicly traded stocks and bonds. Public equities cannot be more than 60% of total assets, and international stock cannot exceed 20%. A practical consequence, according to Mr. Slaughter, is that 40% of the portfolio must be allocated to fixed income.
Gov. Joe Manchin is expected to sign the legislation, according to Mr. Slaughter. Were very happy about it, he added. Sara Scarbro, a spokeswoman for the governor, said Mr. Manchin had yet to receive the final legislation. As soon as he receives it, he will review it, Ms. Scarbro said.
Study: Smaller, younger hedge funds better
NEW YORK The smaller the hedge fund, the better its performance, according to a study by Meredith Jones, managing director, PerTrac Financial Solutions.
Ms. Jones analyzed hedge fund data from January 1996 through July 2006 and created two indexes, one based on fund size and one on age. Based on size, funds with less than $100 million in assets had the best annualized return for the period, 15.46%, and the highest standard deviation, 6.31%. Funds with more than $500 million had the lowest performance, an annualized 11.93%, but the lowest standard deviation at 5.72%. Based on age, funds under two years old produced better returns, an annualized 17.5%, and the lowest standard deviation, at 5.97%, than middle-age and older funds. Ms. Jones paper was published in the February 2007 issue of the journal, Derivatives Use, Trading & Regulation.
Louisiana State Police pick hedge fund finalists
BATON ROUGE, La. Louisiana State Police Retirement System, Baton Rouge, chose GAM USA, Quellos Capital Management, JPMorgan and Union Bancaire Privee as finalists in its search for a hedge fund manager to run $20 million, confirmed Irwin Felps, executive director of the $440 million fund. It is the funds first allocation to hedge funds. Funding will come from cash. A selection will be made at the boards April 18 meeting, Mr. Felps said. An RFP was issued in late January; UBS Financial Services is assisting.
Separately, the fund put Waddell and Reed Investment Management on watch for a domestic small-cap equity portfolio that has underperformed its Russell 2000 Growth index benchmark. Mr. Felps declined to provide the portfolio size but said if performance doesnt improve by June 30, the fund will begin a search for a replacement. Roger Hoadley, a Waddell and Reed spokesman, did not return a call requesting comment by deadline.
Survey finds U.K. plans shifting to alternatives
LONDON Almost a third of U.K. pension funds reallocated about 5% of their portfolios in 2006, with many moving to alternative investments from equities to rein in volatility, according to an Aon Consulting survey.
Because bonds are relatively expensive and yields has been relatively low, many pension funds prefer to diversify their growth assets rather than switch into bonds, Paul McGlone, principal and senior actuary at Aon, said in a telephone interview. In 2006, 14% of the funds surveyed said they have invested in alternatives as a way to better control their risk budgets while maintaining the higher potential for excess returns. Of that 14%, half of them reallocated assets into real estate and 17% opted for absolute-return strategies including hedge funds. Another 11% favored global tactical asset allocation as a diversification tool.
The switch reflects a pension market in which more plans are closed to either new members or new accruals, Mr. McGlone said. About 60% of the funds surveyed were closed to new members and another 14% were closed to new members and accruals.
The survey was conducted between November 2006 and February 2007, and included 150 U.K. companies that operate defined benefit plans.
More investors like hedge fund returns, says State Street
BOSTON Investor satisfaction with the way hedge fund returns raised the absolute return of their portfolios rose to 65% in 2006, compared with a 57% satisfaction rate in 2005, according to the latest annual survey of institutional investors by State Street Corp. Also, 74% said the portfolio diversification benefit of hedge funds matched expectations last year, compared with a 100% satisfaction rate in 2005. A much larger proportion of institutional investors 64% said they invested more than 5% of fund assets in hedge funds in 2006, compared with 48% who did so in 2005.
The findings are based on an Internet survey of 40 to 50 attendees at the Global Absolute Return Congress, held last fall in Boston. Executives who participated in the survey controlled investment of a combined $1 trillion in institutional assets.
ML FX Clone mirrors hedge fund strategies
NEW YORK Merrill Lynch has developed ML FX Clone, a methodology to replicate strategies used by active portfolio managers at hedge funds that trade foreign exchange as an asset class or want to hedge positions with a currency exposure.
Merrill spokeswoman Susan McCabe Walley said ML FX Clone is available as part of the foreign exchange research that Merrill Lynch makes available to investors.
The methodology makes it possible to separate alpha from beta. It can be used for three strategies: momentum, where a portfolio manager follows market trends; carry trade, when an investor buys currencies from high interest-rate countries and sells currencies from low interest-rate countries; and U.S. dollar, when an investor takes position in a foreign currency vs. the U.S. dollar.
Parker launches energy hedge fund of funds
NEW YORK Parker Global Strategies has introduced PGS Global Energy Fund, its first energy and natural resources hedge fund of funds. The fund is initially investing in 23 sector funds in the energy, utilities, natural resources, power, materials, infrastructure and clean technologies sectors. The fund was developed in response to institutional investor demand, Virginia Parker, president and founder, said in an interview.
IndexIQ offers 3 new synthetic indexes
RYE BROOK, N.Y. IndexIQ introduced three synthetic hedge fund indexes. The HedgeIQ suite combines indexes of equities, bonds, real estate, currencies and commodities to replicate the characteristics and performance of the three hedge fund strategies absolute return, long/short equity and emerging markets.