Kentucky Retirement System earmarks $270 million, cuts hedge fund managers

Kentucky Retirement Systems, Frankfort, allocated up to $270 million total to three alternatives managers, said David Eager, interim executive director.

On behalf of three of its five pension plans and all five health insurance plans, KRS allocated $175 million to ArrowMark Partners for a custom opportunistic credit "fund of one," Mr. Eager said. Funding will come from cash, said Rich Robben, interim chief investment officer and head of fixed income.

On behalf of the same plans, KRS committed up to $70 million to Strategic Value Special Situations Fund IV, a private equity fund managed by Strategic Value Partners, and $25 million to New State Capital Partners Fund II, a private equity fund. These are KRS' first direct investment with Strategic Value Partners and New State Capital Partners.

The Kentucky Employees Retirement System non-hazardous pension plan and the State Police Retirement System were the only plans that did not participate in the new investments because they have low funding ratios and cannot afford to lock up capital, Mr. Robben said.

Separately, KRS eliminated hedge funds managed by HBK Capital Management (KRS had a $63 million investment), BlackRock (BLK) ($40 million), Anchorage Capital Group ($38 million), Coatue Management ($28 million), Karya Capital Management ($24 million) and Tide Point Capital Management ($23 million).

The terminations follow KRS' decision in 2016 to restructure the hedge fund portfolio to ensure its fits its overall mandate of reducing risk and providing uncorrelated streams of return. The eliminated hedge funds did not fit that mandate, Mr. Robben said. Following the redemptions, the hedge fund portfolio will total approximately $700 million.

The pension plans and health insurance plans are invested in hedge funds.

Where the redeemed assets will go could not immediately be learned.

As of Dec. 31, KRS administered about $12.3 billion in pension assets and $5.1 billion in health insurance assets.