Rhode Island Pension Terminates Och-Ziff and Brevan Howard Funds

  • State pension plan cutting allocation to hedge funds in half
  • Hedge fund allcation to be cut to 6.5 percent from 15 percent

Rhode Island’s $7.7 billion pension fund terminated investments in seven hedge funds, including Brevan Howard Asset Management and Och-Ziff Capital Management Group LLC, after voting last month to cut its allocation in half over two years.

The state also terminated Brigade Capital Management LP, Emerging Sovereign Group LLC, Partner Fund Management LP, Ascend Capital LLC and Samlyn Capital LLC, state Treasurer Seth Magaziner said in a news release. The state will redeem an estimate $585 million from hedge funds in the coming months.

Hedge funds’ high fees are eating into returns and some of the investment pools provide less diversification than expected, Magaziner said last month when announcing the decision. Rhode Island will cut its hedge fund allocation to 6.5 percent from 15 percent. The state’s current hedge fund assets are about $1.1 billion.

The majority of hedge fund redemptions are expected to be complete by the end of the fiscal year, the news release said. 

Hedge fund investors pulled $28.2 billion from the industry in the third quarter, the most since the aftermath of the global financial crisis, according to Hedge Fund Research Inc. Hedge funds have been under pressure from investors critical of high fees and uninspired performance.

Rhode Island’s stock-hedge funds lost 3.4 percent for the year ending Aug. 31, compared to a 2.83 percent gain for the HFRI Equity Hedge (Total) Index, according to the pension fund. By contrast, “real return” hedge funds, which are less volatile, have beaten a comparable HFRI index over three years 4.02 percent to 2.51 percent.

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