Alaska Permanent Fund Corp., Juneau, plans to exit all of its of hedge funds of funds and will instead make investment decisions in-house.
The $53 billion sovereign wealth fund plans to pull all of the $2 billion it has invested in liquid assets across Crestline Investors, Mariner Investment Group and Lazard Asset Management, according to Marcus Frampton, its director of private markets. The fund will instead rely on its own five-person alternatives team to select hedge funds.
“We've decided to move to a 100% direct program,” Mr. Frampton said in an interview. “We now have the depth of staff and this is an area we want to have some focus on and we are set up to do it directly.”
The change, which allows Alaska to cut the layer of fees paid to funds of funds for making investments, comes as such funds produce lackluster returns. Hedge Fund Research Inc.'s Fund of Funds Composite index fell 0.3% last year and slid 3% in the first quarter.
Alaska's funds of funds did “a very good job” and “no worse than the industry,” Mr. Frampton said. Crestline fell 1.6% in the first quarter, while Mariner and Lazard declined 1.4% and 1.2%, respectively, according to documents from the state fund.
Representatives for Lazard, Crestline and Mariner declined to comment.
The Alaska fund expects hedge funds to make up 11% of its assets, or $5.9 billion, over “a multiyear period.” That's up from its current $5.4 billion hedge fund allocation, before the redemptions.
The Alaska fund is keeping the $3 billion it has invested directly in hedge funds, including AQR Capital Management and Kynikos Associates, Mr. Frampton said. It will invest the additional $2.9 billion in managers to meet its target over time.
Alaska isn't cutting all ties with firms that run funds of funds. It plans to allocate $150 million to Crestline's multimanager fund, called Summit, which launched last year, Mr. Frampton said, and also has $400 million in private equity style investments with the firm. Multimanager platforms involve allocating money to internal teams using different strategies.