Massachusetts Pension Reserves Investment Management board, Boston, terminated RREEF America, which ran $250 million in global real estate securities, citing lackluster performance and concerns about organizational stability.
The decision by RREEF's parent company, Deutsche Bank, late in 2011 to seek potential buyers for both RREEF and other parts of the bank's global money management business was the “No. 1” reason to cut the company, John F. LaCara, investment officer at the $48.1 billion board, said at Tuesday's meeting, ahead of the board's vote.
A sale would be the second change in ownership for RREEF in a decade, Mr. LaCara noted. Also important, Mr. LaCara said, has been continued high-level turnover at RREEF since 2007, as well as performance which has trailed the strategy's custom benchmark over the past one year and three years, both ended Dec. 31, and since inception in February 2008.
Asked about PRIM's decision, Deutsche Bank spokeswoman Mayura Hooper said, “As a matter of policy, we do not comment on client matters.”
The board voted to park the $250 million in real estate securities with European Investors Inc., PRIM's current international REITs manager, while a search to replace RREEF is conducted.
Also Tuesday, the board voted to hire King Street Capital Management, a hedge fund manager focused on U.S. long/short credit and event-driven opportunities, to handle an initial $50 million.
King Street will become the 22nd hedge fund manager PRIM invests in directly, as opposed to investing through a hedge fund-of-funds manager, helping lift that direct portion of PRIM's hedge fund exposure above 20%. Speaking to the board Tuesday, Hannah G. Commoss, deputy chief investment officer, public markets, suggested the balance could continue to shift in favor of direct investments, noting that PRIM's staff sees “diminishing benefits” for PRIM to continuing a broad core hedge fund-of-funds program.
Also at the meeting, the board hired Pictet & Cie, Stone Harbor Investment Partners and Investec as PRIM's first three local currency emerging markets debt managers, despite concerns expressed by board member Alexander E. Aikens III that the local currency exposure could entail risks the board doesn't sufficiently understand.
By a 5-1 vote, the board approved allocations of $400 million to Pictet and $250 million each to Stone Harbor and Investec. Funding came from previous reductions in PRIM's global equity portfolio.