28/04/2010 Author: Kapila Gohel

Fairfax pension to add to Grosvenor and Permal

The $1.3bn Fairfax Educational Employees’ Retirement System (ERFC) will increase its existing fund of hedge funds (FoHFs) investments in a bid to rebalance its portfolio.

ERFC invests in two funds of hedge funds and both will receive capital as part of a rebalancing move recommended by its advisor, New England Pension Consulting (NEPC).

The retirement system’s investment committee will make additional contributions of $16m to Grosvenor Capital Management and $12m to Permal Investment Management to bring the pension’s hedge fund allocation back to its 5% target by June this year.

Following the new investments, both FoHFs will manage a roughly equal weighting, according to an internal ERFC memo. NEPC made the proposed changes following a review of the retirement system’s current asset allocation weightings and policy targets.

Meanwhile, ERFC could also reconsider allocating directly in hedge funds following an ongoing strategic review. The review includes an evaluation of the diversification among its hedge fund managers.

The pension has already aborted one search for a multi-strategy hedge fund manager on the recommendation of NEPC. The move stalled last year because of market volatility and would have been ERFC’s first direct hedge fund investment.

According to ERFC’s strategic plan, the “implementation of the global asset allocation strategy and hedge fund strategies were designed to dampen overall portfolio volatility”.

As at 30 June 2009, ERFC had $44m invested across the two FoHFs, while Bridgewater Associates managed a $74m ‘better beta’ mandate under the global asset allocation, which also has Paamco and Mellon Capital Management in the portfolio.