The investment committee of Kentucky Retirement Systems, Frankfort, approved redeeming $800 million of its total $1.5 billion hedge fund investments by July 2019.
Of that total, $600 million will be redeemed by July 2017 and the remaining $200 million by July 2019, said David L. Eager, interim executive director. Mr. Eager declined to identify which existing hedge fund strategies will be eliminated, but he said 27 will be eliminated by July 2019.
Strategies that are not eliminated by July 2019 will get a more thorough look to see whether they should be retained.
Those that are deemed “high added-value” strategies and good diversifiers could be retained, ideally in an alternative format like a separate account to improve liquidity and transparency, and potentially lower fees, Mr. Eager said. Fifteen strategies, including one managed by KKR Prisma, are expected to receive further review.
The investment committee discussed in October moving completely away from hedge funds. Mr. Eager said the committee eventually decided to see whether some of the strategies are still viable. The KRS investment staff had been in the process of shifting to direct hedge fund investments from hedge funds of funds. KKR Prisma is the only remaining hedge funds-of-funds manager.
The pension fund made its first hedge fund investment in fiscal year 2009, but the hedge fund program started in “earnest” in 2011, Mr. Eager said. The direct portfolio currently includes hedge fund strategies managed by firms such as Davidson Kempner Capital Management, Glenview Capital Management, JANA Partners, Magnetar Capital, Pine River Capital Management and Scopia Capital Management.
The full board will be asked to ratify the investment committee's hedge fund decisions Dec. 1.
KRS administers a roughly $11 billion portfolio of pension fund assets and a $4 billion portfolio of health insurance assets. Both portfolios are invested in hedge funds.