Updated with correction
The $37 billion Connecticut Retirement Plans and Trust Funds, Hartford, will expand and enhance its emerging managers program, increasing the target allocation to 5% to 8% of total assets and the diversity of firms managing those assets.
The 15-year-old Connecticut Horizon Fund, which currently has a target allocation of 2% to 5% of the overall fund and is managed by emerging and Connecticut-based investment firms, has met expectations in terms of enhanced returns, portfolio diversification and the creation of investment opportunities for minority-owned and smaller managers, said Shawn T. Wooden, state treasurer of Connecticut and the principal fiduciary of the funds.
As of March 31, 81.2% of the $1.3 billion Horizon Fund was managed by diverse-owned firms (about 2.9% of total assets) through funds-of-funds managers. The balance of assets in the Horizon Fund are managed by non-diverse emerging managers and Connecticut-based firms.
An additional 11.7% of the overall portfolio is managed directly by diverse-owned managers for a total of 14.6% of assets managed by minority-owned firms.
After a review of the emerging manager fund, Mr. Wooden said the program can accomplish more, particularly through "a greater focus on the diversity component."
Though details are still being finalized, Mr. Wooden said among the program changes will be a higher allocation to private equity and other private market investments and more direct investment by the fund rather than through funds-of-funds managers. The current private market allocation in the Horizon Fund is 25%.
"Direct investments will add more flexibility to the program so we can take advantage of hiring diverse managers in more asset classes," he said.
He added that the Horizon Fund also will invest in earlier-stage managers and will broaden the mandates of some firms to provide them with a wider opportunity set.
To make room for more emerging and diverse managers in the Horizon Fund, a separate fund will be set up for Connecticut-based managers and Mr. Wooden and his staff also are working out a program to move promising emerging managers up to a "middle stage" allocation prior to being graduated to a full-sized mandate in the main portfolio.
"Our goal is not to keep these firms as emerging managers. We want to graduate them from the (funds-of-funds emerging manager) program to direct relationships" in the overall portfolio, Mr. Wooden said.
Additions to the emerging manager program will include hosting an annual emerging manager conference in Connecticut and "a significant advocacy component" to be more engaged with diverse managers, he said.
Mr. Wooden expects that the rollout of the new emerging manager program will happen before the end of the year, once he presents the policy initiative to the Investment Advisory Council of the CRPTF for review.