Massachusetts Pension Reserves Investment Management Board will decide whether to invest as much as $200 million with Goldman Sachs Group Inc.’s asset management arm as it moves hedge fund-like strategies to accounts with lower fees.
The board will vote next week whether to award the account to Goldman Sachs, which will use computer models to invest based on risk factors, and as much as $150 million to structured credit firm 400 Capital Management in a mandate that’s also outside of commingled funds, said Eric Nierenberg, who oversees the plan’s $5.7 billion hedge fund portfolio.
If the deals are approved, PRIM, as the $62.3 billion retirement fund calls itself, will have put more than $1 billion this year into managed accounts for hedge funds and other strategies not covered by traditional investment buckets. The pension, which counts Highfields Capital Management, Claren Road Asset Management and Brevan Howard Asset Management among its managers, is shifting to tailored accounts that typically offer lower fees and greater transparency than pooled funds.
The pension started pushing managers in 2014 to cut fees, and it has been unwinding allocations to funds that farm out money to a variety of hedge funds since 2011 to avoid paying twice. California Public Employees’ Retirement System took a different approach last year by pulling its $4 billion in hedge funds, after deciding that the program couldn’t grow enough to justify the costs.
If PRIM approves the two investments at its June 4 meeting in Boston, it will have allotted about $650 million to hedge fund managed accounts this year and $350 million to accounts dedicated to nontraditional investments, or what it calls “portfolio completion strategies,” Nierenberg said. The state plan expects to invest several hundred million dollars more in separate accounts during the second half of the year.
PRIM can better control risks by gaining visibility into the investments managers make, according to Nierenberg.
PRIM has a 9 percent target allocation to hedge funds and 4 percent to portfolio completion strategies.