Alaska’s $53 Billion Permanent Pool to Exit Funds of Hedge Funds

  • Will pull $2 billion invested at Crestline, Mariner, Lazard
  • Plans to use five-person staff to make investments directly

Alaska’s $53 billion wealth fund plans to exit all of its funds of hedge funds and will instead make investment decisions in-house.

Alaska Permanent Fund Corp. plans to pull all of the $2 billion it has invested in liquid assets across Crestline Investors, Mariner Investment Group and Lazard Asset Management, according to Marcus Frampton, its director of private markets. Alaska will instead rely on its own five-person alternatives team to select hedge funds.

“We’ve decided to move to a 100 percent direct program,” Frampton said in an interview. “We now have the depth of staff and this is an area we want to have some focus on and we are set up to do it directly.”

The change, which allows Alaska to cut the layer of fees paid to funds of funds for making investments, comes as such funds produce lackluster returns. Hedge Fund Research Inc.’s Fund of Funds Composite Index fell 0.3 percent last year and slid 3 percent in the first quarter.

Alaska’s funds of funds did “a very good job” and “no worse than the industry,” Frampton said. Crestline fell 1.6 percent in the first quarter, while Mariner and Lazard declined 1.4 percent and 1.2 percent, respectively, according to documents from the state fund.

Representatives for Lazard, Crestline and Mariner declined to comment.

AQR, Kynikos

The Alaska fund expects hedge funds to make up 11 percent of its assets under management, or $5.9 billion, over “a multiyear period.” That’s up from its current $5.4 billion hedge fund allocation, before the redemptions.

The Alaska fund is keeping the $3 billion it has invested directly in hedge funds including Clifford Asness’s AQR Capital Management and Jim Chanos’s Kynikos Associates, Frampton said. It will invest the additional $2.9 billion in managers to meet its target over time.

Alaska isn’t cutting all ties with firms that run funds of funds. It plans to allocate $150 million to Crestline’s multimanager fund, called Summit, which launched last year, Frampton said, and also has $400 million in private equity style investments with the firm. Multimanager platforms involve allocating money to internal teams using different strategies.

The Alaska fund manages at least 25 percent of all mineral lease rentals, royalty sales proceeds, federal mineral revenue-sharing payments and bonuses received by the state, according to its website.

Before it's here, it's on the Bloomberg Terminal.