The investment committee of the $15 billion Kentucky Retirement Systems, Frankfort, recommends eliminating 12 direct hedge fund investments and reducing its allocation to hedge fund-of-funds manager KKR Prisma by roughly $300 million by July 2019, said David Peden, chief investment officer.
David L. Eager, interim executive director, told Pensions & Investments earlier this month that the investment committee approved redeeming $800 million of its total $1.5 billion hedge fund investments by July 2019 to simplify investments, improve liquidity and transparency and cut fees.
To reach the $800 million, 12 direct investments are recommended for termination: Anchorage Capital Group (credit), Knighthead Capital Management’s Domestic Fund (credit), Scopia PX (equity market-neutral), Tourbillon Capital Partners’ Global Master Fund (long/short equity), Luxor Capital Group’s Luxor Capital Partners (event-driven), Senator Investment Group’s Global Opportunity Fund (event-driven), Finisterre Capital’s Global Opportunity Fund (macro), DSAM Partners’ DSAM+ (long/short equity), Glenview Capital Management (long/short equity), JANA Partners Qualified (event-driven), Pine River Capital Management’s Pine River Fund (multistrategy) and LibreMax Capital’s LibreMax Partners (fixed-income arbitrage). Each strategy has close to $20 million invested. KRS is also still winding down its investments with hedge funds-of-funds managers Blackstone Group and Pacific Alternative Asset Management Co.
Fifteen underlying hedge funds in KKR Prisma’s roughly $700 million fund-of-funds portfolio are also recommended for elimination by July 2019, said Mr. Peden. Those investments amount to about $300 million.
Direct and underlying hedge fund strategies that are not eliminated by July 2019 are expected get a more thorough look to see whether they are “high added-value” strategies and good diversifiers and should be retained, ideally in an alternative format like a separate account, Mr. Eager also previously said. Those targeted for further review include global macro, trend following and relative-value strategies.
If underlying managers in KKR Prisma’s portfolio are retained, those could be turned into direct relationships and KKR Prisma would be retained for a niche/tactical trading strategy, said Mr. Peden.
The investment committee’s hedge fund decisions must still be ratified by the full board. The next board meeting is Dec. 1.
Where redeemed hedge fund assets will be transferred is still being determined.