Illinois Teachers' Retirement System, Springfield, plans searches for a hedge fund consultant and a hedge fund risk management provider as part of a restructuring of the $39.6 billion pension fund's hedge fund portfolio.
The outside providers will be needed as TRS moves to all direct investments in its $2.1 billion hedge fund portfolio, Kenneth Musick, absolute-return investment officer, told trustees at a Thursday investment committee meeting.
The searches likely will be posted on the pension fund's website within two weeks, said R. Stanley Rupnik, chief investment officer, in an interview. Finalists likely will be interviewed at the board's Oct. 23-25 meeting.
Over the next two to three years, Mr. Musick told trustees, internal investment staff could be ready to move to a 100% direct investment portfolio. Staff additions will be needed although he didn't provide specific details to trustees.
One of the two current hedge funds-of-funds — K2 Advisors, which manages $520 million, or Grosvenor Capital Management, with $438 million — will be terminated. The remaining firm will assume management of the combined hedge fund-of-funds portfolio with a new assignment: Concentrate the hedge fund-of-funds lineup to 20 underlying hedge funds from 60 funds.
Both funds-of-funds managers have been asked to rebid, and the surviving manager is likely to be chosen at the board's Aug. 14-16 meeting, Mr. Musick said.
The pension fund will increase direct investments in hedge funds to 10 from five. Four to six new hedge fund managers will be presented to the board for approval over the next six months, Mr. Musick said.
TRS' current investments in single- and multistrategy hedge funds will be retained: Blue Mountain Capital Management, $230 million; Bridgewater Associates, $304 million; Carlson Capital, $140 million; Claren Road Asset Management, $214 million; and Pine River Capital Management, $189 million.
These changes will be slotted into a new portfolio construction that reorganizes the current 22 hedge fund strategy buckets into three categories:
- convergent — differentiated strategies that have correlated performance during times of market stress;
- convex — various trading strategies that provide positive performance during market downturns; and
- opportunistic — strategies that don't fit into either of the other two categories.