Texas County & District Retirement System continues to reduce its number of hedge funds, but not the size of its $6.2 billion hedge fund portfolio.
In light of disappointing returns, the investment staff and trustees of the $25.6 billion fund — like their peers at many other institutions — are reviewing the role and efficacy of hedge funds within the overall portfolio.
But rather than cut back the 25% target allocation to hedge funds, TCDRS officials instead are culling managers.
The move will allow the hedge fund team to consolidate investments with fewer managers in which they have higher conviction, said Paul J. Williams, chief investment officer, in an interview at the system's Austin headquarters.
Investment officials will redeem a total of $760 million from five hedge funds and reallocate the assets among the 23 remaining hedge funds in the portfolio, Mr. Williams told the fund's trustees during a board meeting on Dec. 1.
York Capital Management Global Advisors LLC will be terminated for performance of its $223 million allocation, Mr. Williams said. The York Capital Management Fund was down a net 4.9% for the year ended Sept. 30, compared to a gain of 6.2% for the HFRI Event Driven index and 4% for the HFRI Merger Arbitrage index, the benchmarks for the pension fund's $1.5 billion event-driven portfolio.
York Capital officials declined to comment, a spokesman said.
As part of the manager consolidation within its hedge fund portfolio, TCDRS also will pull assets from two funds in its $1.8 billion long/short equity portfolio: Archipelago Partners, with $233 million, managed by Wellington Alternative Investments LLC in a hedge fund of funds; and Ascend Partners Fund II, with $6 million, managed by Ascend Capital LLC.
About $211 million will be redeemed from Brevan Howard Asset Management LLP's Brevan Howard flagship fund from within TCDRS' $1.1 billion global macro portfolio.
Asia-focused multistrategy manager LIM Advisors Ltd. will receive a redemption request for $87 million from the LIM Asia Multi-Strategy Fund. The pension fund's multistrategy portfolio totaled $427 million as of Sept. 30.
In the past, the municipal fund has spaced out its hedge fund terminations: between 2010 and 2014 TCDRS asked to redeem $674 million from five hedge funds and still has a total of $21 million remaining in side pockets with these funds.