Los Angeles Water and Power Employees' Retirement Plan on Wednesday terminated Pacific Alternative Asset Management, which runs $36 million in a hedge fund of funds, because of uncertainty stemming from a court ruling concerning the equity stake held by PAAMCO's four founders.
Javier Romero, chairman of the $7.1 billion fund's board of administration, said trustees acted on the advice of the fund's consultant, Pension Consulting Alliance.
PCA consultant Neil Rue recommended in a report to trustees that they terminate PAAMCO because of an Oct. 5 ruling in U.S. District Court in New York that granted S. Donald Sussman, a hedge fund manager, a 40% ownership stake of PAAMCO Founders. PAAMCO Founders is a group of the four founding partners of the firm who own a 75% voting interest and 65% economic interest in the investment manager, Pacific Alternative Asset Management.
In his report, Mr. Rue wrote: “PAAMCO has made it clear that Donald Sussman's equity ownership in PAAMCO Founders is a passive position and that he has no controlling interest ... However, after further review with (Water and Power Retirement Plan) staff and PAAMCO, PCA feels that the long-term implications of Mr. Sussman and the subsequent loss of expected revenue will detract from the value of the WPERP portfolio.”
Mr. Rue also recommended that the fund conduct a search for a replacement manager, but Mr. Romero did not confirm the search.
Jeremy Wolfson, the plan's chief investment officer, referred calls to Sangeeta Bhatia, retirement plan manager, who could not be reached for comment.
Jane Buchan, PAAMCO's CEO, declined to comment.
