US - The Massachusetts state pension fund will begin bypassing middlemen by directly investing as much as $500m in hedge funds.
The board that oversees the $49.5bn fund, known as the Massachusetts Pensions Reserves Investment Trust, voted today to hire Cliffwater to advise it as it shifts money out of the $3.8bn it has placed in hedge fund of funds, which charge an additional management fee.
Officials are hoping to lower the cost of investing in the alternative-asset class and improve performance, according to Steven Grossman, the state treasurer who oversees the board.
"We like to have a direct relationship" with our managers, said Grossman, a Democrat. "We don't necessarily need the middleman."
Massachusetts is seeking to recover after the plan lost 24%in the 12 months ended June 30, 2009, following the global credit crisis. The fund gained 12.8% in fiscal 2010 and is up another 18.65% in the eight months through February this year, according to a report presented to the board today.
The state currently pays an additional fee that averages 84 basis points, or 0.84 percentage point, to invest in hedge funds through a middleman, according to Grossman.
The pension plan uses five hedge fund companies: New York-based Arden Asset Management; Chicago-based Grosvenor Capital Management Management Holdings; Stamford, Connecticut-based K2 Advisors; Irvine, California-based Pacific Alternative Asset Management; and Washington-based The Rock Creek Group.
Cliffwater, which is based in Marina del Rey, California, will charge a base fee of $500,000 to help find and monitor an initial direct investment of $500m in hedge funds, which are private, largely unregulated pools of capital whose managers participate substantially in profits from investments. Massachusetts joins states such as New Jersey in both directly investing in hedge funds and also using funds of funds, said Stephen Nesbitt, Cliffwater's chief executive officer.
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