09/02/2011 Author: Kapila Gohel

Texas schools fund to up Mesirow portfolio spend

The $24.4bn Texas Permanent School Fund (PSF) will rebalance its absolute return allocation, following a decision to replace Goldman Sachs as one of its managed account managers, with UK fund of hedge funds (FoHF) specialist, Gam.

PSF’s absolute return portfolio, which is managed over five separate managed account FoHF portfolios, named Raven 1 to 5, is currently $50m underweight of its 10% target, Holland Timmins, CIO, stated during a recent PSF board meeting.

As a result, the board will increase the portfolio managed by Mesirow (Raven 2), its highest performing manager since inception, from $215m to $300m, and at the same time, lower the Raven 5 portfolio, moving from Goldman Sachs to Gam to equalise the allocations.

The Raven portfolios are legally owned entities of Texas Education Authority, meaning PSF will not have to serve a draw-down period with Goldman Sachs.

Gam will take over Raven 5 as soon as a contract is in place, and is expected to review and change the underlying managers, using its exposure in global macro hedge funds.

“Global macro was the element in Gam’s portfolio that was not in the other [existing] portfolios,” said PSF chairman Marsha Farney during the board meeting last month.

Meanwhile, the board also voted to place K2 Advisors (Raven 3) on its ‘watch’ list last month due to underperformance over the past three quarters. Raven 1 has $784m in assets and is managed by Grosvenor Capital Management, while Blackstone Group manages an estimated $600m under Raven 4.  

Goldman Sachs was terminated as a result of concerns about the manager’s performance and staff turn-over rate in recent years, HFMWeek reported exclusively in November 2010. Goldman Sachs’s portfolio was also the lowest performing manager of the five since the absolute return allocation was implemented in 2008.