Texas Permanent School Fund's slow journey toward direct investment in hedge funds hit a traffic jam, thanks to the state education agency's decision that the permanent fund must reconsider a proposal to terminate three of its five hedge funds-of-funds managers.
The Texas State Board of Education and its committee on finance/ Permanent School Fund, which oversee management of the $24.4 billion Austin-based educational endowment, have spent more than a year in heated debate over a recommendation to move to direct investment in hedge funds through strategic relationships with two existing hedge funds-of-funds managers. Implicit in the proposal was terminating three hedge funds of funds.
On April 20, the education board approved Blackstone Alternative Asset Management and Grosvenor Capital Management LP as strategic relationship managers. The finance committee recommended terminating GAM USA, K2 Advisors LLC and Mesirow Advanced Strategies Inc., but the full board was prevented from acting because proper notice had not been posted publicly in time for a vote, according to a webcast of the meeting.
But the proposed structural changes, especially the termination of existing hedge funds-of-funds managers, have been so controversial for some of the 15 elected members of Texas State Board of Education commissioners that they forced a slower pace on the restructuring between the state education board's April and July meetings.
On July 20, education commissioners directed Holland Timmins, Texas Permanent's chief investment officer and executive administrator, to renegotiate fees and terms with four current hedge fund-of-funds managers. Only K2 Advisors was terminated, effective immediately, at that meeting, the webcast showed.
Because the two strategic partnerships explicitly include portfolio construction details and knowledge transfer to staff as part of the deal, Mr. Timmins intends for the staff to eventually assume in-house management of a hedge fund portfolio of direct investments, according to meeting webcasts.
Mr. Timmins declined to be interviewed for this story.