24/08/2011 Author: Elana Margulies

City of Richmond pension hires Protégé seeder fund

City of Richmond Retirement Systems, an approximately $550m pension scheme for Richmond, Virginia, has hired seeding firm Protégé Partners as it seeks greater exposure to emerging hedge fund talent, HFMWeek has learned.

Don Steinbrugge, a member of the investment committee and managing partner of Agecroft Partners, said the pension had decided to hire Protégé Partners, after debating between the firm and Larch Lane Advisors, due to a combination of firm size, quality of investment team, infrastructure, investment process, track record and historical volatility.

“The reason we wanted to invest in a seeder is because we believe that smaller, more nimble funds should be able to outperform very large ones over time,” he said. “In addition to that, there is a lot of opportunity in the marketplace for seeder managers because a significant increase in hedge launches, along with a number of larger investment banks closing down their prop desks, has resulted in some very high quality launches.

We believe that Larch Lane and Protégé were the two best in the industry and it was a very difficult choice which of the two firms to hire, because we thought very highly of both. In the end, the consultant knew Protégé better than Larch Lane, which tilted the decision to Protégé.”

Richmond isn’t the only pension that has selected incubator firms as they try to gain exposure to smaller and up-and-coming hedge funds. Over the last few years, New York State Common Retirement Fund, California Public Employees Retirement System and New Jersey Division of Investments were among those that have moved into the space.

Approximately 10-12% of the City of Richmond’s pension is invested in funds of hedge funds, with another 5% in hedge fund-type strategies, including distressed debt and credit. The fund has also recently moved its long/short equity investments into its main equity bucket.