The $65.2 billion Virginia Retirement System, Richmond, is ready to join the growing ranks of public pension funds creating strategic alliances with external investment managers.
Officials on Nov. 20 announced the first managers for what Chief Investment Officer Ronald Schmitz is calling “the grand experiment,” its new strategic opportunity program. The program has two pieces: one, an innovation fund oriented more toward public markets and another for private investment partnerships.
Funding will come from taking 3% from each of the pension fund's six asset classes.
For the public markets segment, VRS committed $200 million to AQR Capital Management LLC for a multistrategy hedge fund; $151 million to Bridgewater Associates' Pure Alpha II global hedge fund; and $77 million to Bridgewater's All Weather global risk parity fund.
Meanwhile, one private manager is ready to go and another is in the pipeline, he said.
Mr. Schmitz, who is celebrating his third anniversary at VRS, planted the seeds for the program shortly after arriving, thanks to his comfort with the concept since his days as CIO of the $68.2 billion Oregon Public Employees Retirement Fund, Salem, from 2003 to late 2011.
The concept was approved by the Virginia Retirement System's investment advisory committee and board of trustees in 2012, and the board has since set the risk and return parameters.
“The idea of strategic partnerships is increasingly common, especially among the largest public plans,” said Timothy F. McCusker, chief investment officer of NEPC LLC in Cambridge, Mass. NEPC is not the pension fund's consultant, but Mr. McCusker has experience working with pension funds setting up strategic partnerships.
“They are using it as a way to get more efficiencies. They're paying these managers an awful lot of money, so they are looking to get as much as they can from them. Some are trying to get information and build capabilities (in-house). Some strategic partnerships are more about getting tactical insights.”