Institutional investors issued a manifesto in the form of a comprehensive set of guidelines they drafted to better align the interests of institutional investors and hedge fund managers.
The guidelines, written by institutional hedge fund investors, home in on ways to achieve fairer hedge fund contract terms in three core areas: economic and liquidity terms; documentation; and governance.
Institutional investor industry group Alignment of Interests Association Inc., Austin, Texas, made its new hedge fund investing principles available online — www.altaoi.org — on Dec. 2 in the hope that many asset owners will use the guidelines to negotiate with hedge fund firms.
“We realized that the issues that hedge fund investors both large and small face are common. The AOI principles allow each institutional investor to start a conversation with hedge fund managers with a unified voice,” said Robert Lee III, director of hedge funds, at the $26 billion Employees Retirement System of Texas, Austin, in an interview. Mr. Lee serves on AOI's board and was on the principles' drafting team.
“When we started our direct investment in hedge funds three years ago, we followed principles similar to those just issued by AOI, but the response from hedge fund managers was "no one else is asking us for these things.' The new AOI guidelines take that argument off the table,” Mr. Lee added.
The investment principles resulted from collaboration by a steering committee of 15 institutional hedge fund investors, including Texas ERS. Other participants included the $177.8 billion State Board of Administration of Florida, Tallahassee; $129 billion Teacher Retirement System of Texas and $37.4 billion University of Texas Investment Management Co., both in Austin; C$65.1 billion (US$57.3 billion) Ontario Municipal Employees Retirement System, Toronto; and $2.2 billion Alfred P. Sloan Foundation, New York.
The AOI steering committee has an aggregate $960 billion in assets of which about $75 billion is invested in hedge funds, said Melissa Santaniello in an interview. She is AOI's founder and a board member.
Hedge fund manager Frank Brosens, co-founder and risk manager of Taconic Capital Advisors LP, New York, said in a statement that AOI is “an impressive group of institutions that has, not surprisingly, produced a very thoughtful document.”
“We completely agree with the approach of partnering with our investors in a way that optimizes the alignment of interest and long term economics for our limited partners,” he added.
Taconic managed $8.7 billion as of Dec. 1.