Baltimore City Fire & Police Employees’ Retirement System next week will take its next step toward direct hedge fund investment at the expense of its current funds-of-funds lineup.
In November, board members approved building a direct hedge fund portfolio, following a presentation by the $2.55 billion fund’s consultant, Summit Strategies Group, reviewing options to reduce hedge fund costs at the request of the board of trustees.
“The board engaged Summit to build a direct portfolio,” said spokeswoman Amy Baskerville.
The current hedge fund allocation is $196 million, or 9.6% of total assets, invested in three funds of funds: Prisma Spectrum Fund, with $121 million; Titan Masters International Fund Ltd., with $71.5 million; and UBP ARV Ltd., with $3.1 million, which is currently in liquidation, according to Summit presentation materials provided at the Nov. 18 meeting.
In those materials, Summit noted that fund of funds provide exposure to diversified portfolio of managers, “however, they do have an additional layer of fees, which will reduce returns.”
Summit presented two options: move to separately managed accounts with existing funds-of-funds managers and reduced fees; or invest directly with the underlying hedge funds. The direct investment option would save an estimated $1.3 million in management fees, Summit said.
New separately managed accounts with existing managers Prisma Capital Partners and Titan Advisors, which have proposed reducing their fees and underlying manager fees, would save roughly $512,500 in fees, Summit estimated.
Details on the board’s next step will be discussed at its Dec. 9 meeting, Ms. Baskerville said.