San Diego County Employees’ Retirement Association committed $100 million each to two hedge funds: Saba Capital Partners, a relative value strategy and D.E. Shaw’s Heliant fund, a global macro fund.
The board of the $8.2 billion association voted July 21 to make the Saba Capital investment despite some board members’ hesitation over investing with the co-head and three members of the same team that was at the helm of Deutsche Bank’s hedge fund when it lost 14% of the hedge fund’s $10 billion to $12 billion portfolio in 2008.
One board member suggested tabling the decision while another member recommended reducing the commitment because the Saba team’s losses while at Deutsche Bank were not brought to the board’s attention until the July 21 meeting.
In other action, Yegin Chen, the system’s investment officer, announced the board had completed a sale of its entire venture capital portfolio on the secondary market that had been approved in 2010. The association received a total of $67.2 million and was released from some $23 million of uncalled capital commitments, according to a memo to the board.
Mr. Chen explained at the board meeting the venture capital portfolio had underperformed, that there were “issues of soaking up the staff’s and the board’s time” and that there were better places to deploy the capital.
The board also divided its investment in natural resources, which is a component of the fund’s 10% real asset allocation as well as a part of the fund’s inflation-sensitive assets, into private and publicly traded portfolios. This means that there will not be a tracking error for the private natural resources but a 200-basis-point tracking error for publicly traded natural resources.
The board also increased the allowable tracking error for other asset classes as follows: doubling emerging market equities and emerging market debt to 800 and 400 basis points, respectively; quadrupling high yield to 800 basis points; and raising U.S. Treasuries to 400 basis points from 75 basis points and TIPS to 200 basis points from 75 basis points.
The board’s portfolio strategist, Salient Partners, recommended the changes to create a “common approach to tracking error by subportfolio based on nature of the investment strategy/mandate,” according to a Salient memo to the board.
