Texas Permanent School Fund, Austin, received permission on Friday to seek information from its five existing hedge funds-of-funds managers about how they would structure and price a strategic partnership arrangement with the $24 billion fund.
The managers are Grosvenor Capital Management, which currently manages $770 million; Blackstone Alternative Asset Management, $637 million; K2 Advisors, $380 million; GAM USA, $328 million; and Mesirow Advanced Strategies, $317 million.
The managers that currently split management of Texas Permanent's roughly $2.5 billion hedge fund portfolio are receiving the request as part of the fund's efforts to cut the “extreme fees” incurred by using a funds-of-funds approach, said Patricia Hardy, chairwoman of the Committee on School Finance/Permanent School Fund, during a webcast of the State Board of Education meeting Friday.
Permission was given by the Texas State Board of Education, which oversees management of the Permanent School Fund on behalf of the Texas Education Agency, Austin.
Ms. Hardy stressed to board members that the current proposal will provide an opportunity for TPSF staff to work with “one, two or three” existing hedge funds-of-funds managers to manage a portfolio of single-strategy and multistrategy hedge funds. The idea is for staff to learn more about direct investing in hedge funds with a view toward bringing “more of the work in-house” at a future point, Ms. Hardy said during the webcast.
She noted that the strategic partnership proposal and possibility of staff taking over management of an internally managed fund-of-funds portfolio applies only to the absolute-return asset class.
Holland Timmins, TPSF's executive administrator and chief investment officer, said during a webcast of Wednesday's finance committee meeting that hedge funds-of-funds managers' fees paid since inception totaled a 87 basis points compared with collective portfolio performance of 75 basis points, resulting in a -0.12% return for the three-year period.
Mr. Timmins estimated hedge funds-of-funds manager fees would total $115 million over the next five years.
Bids for the closed process are due Feb. 17; investment staff will select three firms to present their proposals at the finance committee's April 18 meeting, according to Wednesday's finance committee meeting webcast.
In other news from the State Board of Education meeting Friday, the board approved a commitment of $50 million to Prudential Senior Housing Partnership IV, a value real estate fund managed by Prudential Real Estate Investors.