The Teachers' Retirement System of the State of Illinois, Springfield, more than doubled the hedge fund-of-funds assets managed by Grosvenor Capital Management LLC to $998 million, terminating K2 Advisors LLC.
The move is part of the $40.8 billion fund's ongoing restructuring of its $2.1 billion hedge fund portfolio to include more direct investments in hedge funds, just one of many moves trustees approved on Dec. 6.
Trustees also gave a nod to hiring risk management and investment performance systems providers; hiring a hedge fund consultant; committing additional assets to real estate and private equity funds and co-investments; "graduating' an emerging manager; conducting an asset/liability study next year; and possibly creating strategic partners for opportunistic credit. The board also ratified the sale of stakes in three private equity funds on the secondary market.
As part of a consolidation of hedge funds-of-funds assets, management of the $537 million that Stamford, Conn.-based K2 managed in a hedge fund-of-funds strategy will be assumed by Chicago-based Grosvenor. Grosvenor will merge the K2 portfolio into its own $461 million hedge fund-of-funds portfolio.
Greg Turk, director of investments, stressed to trustees at an investment committee meeting on Dec. 5 that K2's termination is the result of the portfolio reconstruction, not performance problems or organizational concerns.
“Grosvenor has more resources and will be a better fit” with internal TRS hedge fund officials, Kenneth Musick, investment officer for hedge funds, told trustees.
Grosvenor's role within the new portfolio remains to be determined, R. Stanley Rupnik, chief investment officer, said in an interview. Its portfolio will be the source of at least some of the new direct hedge fund investments, he said. Illinois Teachers' hedge fund portfolio has a 46% allocation to hedge funds of funds.
The board hired Albourne Partners Ltd., London, as the system's first hedge fund consultant. It will provide manager research and selection advice as well as portfolio construction assistance.
Also hired were BlackRock Inc., New York, to provide the system's first risk management system, and Investment Metrics LLC, Darien, Conn., to provide its first performance measurement system.
In addition, TRS trustees approved a $100 million commitment to Blackstone Real Estate Partners Asia at the Dec. 6 meeting.
Strategic Global Advisors LLC, Newport Beach, Calif., was graduated from TRS' emerging managers program into the system's $9.2 billion international equity program. SGA eventually will run a full 2%, about $185 million, of the international stock portfolio. Initially, however, the firm will manage about $150 million because TRS policy forbids investments that exceed 20% of a manager's overall assets; SGA managed $562 million at the end of November.
SGA's original mandate was for active all-capitalization core international equities, but it will move to managing small- and large-cap core strategies within the larger portfolio.
The initial $50 million SGA was awarded as part of the system's emerging managers program in March 2011 will be put back into the $500 million pool, Kenyatta Matheny, senior investment officer and head of the program, told trustees.