Massachusetts Pension Reserves Investment Management board, Boston, voted to hire SSgA to manage $600 million in indexed emerging markets equities, PRIM's first passive allocation to that asset class, and added $1.5 billion to SSgA's indexed international developed markets equity allocation.
The two mandates will lift SSgA's overall assets run for MassPRIM to 26% of the plan's total $43.8 billion, exceeding the 25% limit for any one passive manager that was approved by the board in February.
That policy, however, left the board with an option to make exceptions to the rule, and PRIM trustees opted to do so after SSgA offered to manage those portfolios for fees sharply below what competitors were bidding.
According to documents distributed to board members by PRIM staff, for the $1.5 billion to be benchmarked against the MSCI World ex-U.S. Investible Market index, SSgA's proposed annual fee of 1.33 basis points was just more than a third of the 3.67 basis-point offer by the next strongest candidate, BlackRock.
For the $600 million to be benchmarked against the MSCI Emerging Markets Investible Market index, SSgA's proposed fee of 3.83 basis points was once again roughly one-third of BlackRock's 11.67 basis point offer.
Speaking at the meeting, Stan Mavromates, PRIM's chief investment officer, said PRIM would save more than $8 million in fees over the coming decade by hiring SSgA — a compelling reason to consider relaxing the board's newly adopted “manager sizing” limits.
Having decided to breach the 25% limit, however, the board agreed to review the situation every six to 12 months.
Funding for the additional developed international equity index allocation, which lifted the amount overseen by SSgA for PRIM to $3.85 billion, came from active international portfolios that had been managed by AXA Rosenberg and AllianceBernstein, both terminated in December.
Separately, MassPRIM committed $20 million each to early stage venture capital funds Polaris Venture Partners VI and Rembrandt Venture Partners II.
The Polaris fund focuses on sectors such as health care and information technology, with a $600 million target, and the Rembrandt fund targets Silicon Valley businesses and is looking to raise up to $200 million.