Massachusetts Pension Reserves Investment Management board's investment committee voted Tuesday to recommend that the full board approve boosting the Boston-based $49.8 billion retirement system's direct investments in hedge funds by about $2.7 billion over the next 15 months, terminating four of PRIM's five hedge fund-of-funds managers in the process.
According to the agenda materials for the investment committee meeting, obtained by Pensions & Investments, the committee unanimously voted to recommend that the full board terminate hedge fund-of-funds providers Arden Asset Management, K2 Advisors, Grosvenor Capital Management and Rock Creek Group as the system looks to reduce both manager overlap and fees by investing directly with hedge funds.
As of Feb. 29, those firms' allocations from PRIM stood at $556 million for Arden, $811 million for K2, $719 million for Grosvenor and $743 million for Rock Creek.
The investment committee voted to retain hedge fund-of-funds manager PAAMCO, which was managing $720 million for PRIM as of Feb. 29. PRIM's agenda materials for the investment committee meeting noted that PAAMCO's focus on “emerging hedge fund managers” made that portfolio “highly complementary” to the PRIM board's direct hedge fund program.
The agenda materials recommended that the full board retain a hedge fund transition manager, and encouraged all five of PRIM's current hedge fund-of-funds manager lineup to bid on that assignment.
The gradual liquidation of PRIM's hedge fund-of-funds allocations would be accompanied by a boost in direct investments in the 21 hedge fund managers the board selected since October.
On other matters, the investment committee voted to recommend that the full board consider hiring emerging markets small-cap equity managers Wasatch Advisors to run $140 million and Acadian Asset Management to handle $60 million. An RFP was issued in November.
However, the committee also voted to recommend that the full board issue an RFP for active core emerging markets equity managers to “conduct a restructuring of the (retirement system's) active core emerging markets equity portfolio,” according to the agenda materials.
The move reflects the fact that PRIM's existing lineup of active emerging markets equity managers “have not fully met staff's performance expectations,” according to the agenda materials. Those materials show Ashmore Emerging Markets Management, which oversaw $481 million as of Jan. 31, and Grantham Mayo Van Otterloo, which oversaw $539 million, both trailing their benchmarks over the past one-, three- and five-year periods, with T. Rowe Price, which managed $554 million, outperforming for the one- and three-year periods but underperforming over the past five years.
Separately, following the system's RFP in January for long-only investment consulting services, the investment committee voted to recommend that the full board choose Callan Associates, noting that firm's “extensive” experience with public plans, familiarity with the risk system's PRIM uses and competitive fees, among other strengths. Callan's proposal called for combined fees, over the three-year life of the contract, beginning April 3, of $834,543.
The MassPRIM board is expected to consider the committee's recommendations April 3.