After nearly 70 years of managing money, officials at the Florida State Board of Administration (SBA) in Tallahassee, home to the Florida Retirement System, the fourth-largest U.S. pension fund, are close to making their first allocation to hedge funds.
The giant state institution, which manages $123.4 billion in 36 separate funds, has waited on the sidelines for years. Once the hedge funds are selected, they will reside within the SBA’s strategic investment portfolio, headed by senior investment officer Jim Treanor. That portfolio currently holds about $4 billion, mostly in distressed opportunistic debt investments that include “hung” bridge loans and bank capital committed to buyout deals. Treanor’s group also oversees the private equity portfolio, which weighs in at around $4.3 billion. Both asset classes are part of the $99.4 billion Florida Retirement System.
It’s no coincidence that the hedge funds are being brought onboard now. Last October, the SBA executive director and CIO Ashbel Williams returned to his former post after a decade-long stint at Fir Tree Partners, an opportunistic, value-oriented multistrategy hedge fund with $4 billion in assets. Williams served as managing director of investor relations at the New York–based hedge fund. “[Investing in hedge funds] was always on the list, but Ash served as a catalyst to get it going,” explains Treanor, who has been at the SBA since 2000.
The SBA’s first hedge fund investment will be made after the pension fund finalizes its consultant hire later this summer or in September. On the short list are hedge fund specialist consulting firms Aksia in New York and Albourne Partners in London, as well as generalist consulting firms Cambridge Associates of Boston and Hammond Associates of St. Louis. The decision to select fund-of-funds or direct investments will be made once the consultant is hired.
Williams, who introduced private equity investments during his first term as SBA director in the mid-1990s, anticipates having a great array of top hedge fund managers to select from. “In many cases these will probably be people who you couldn’t put money with two years ago because they were closed,” he explains. Because the opportunity set is so compelling, the SBA is not starting with a definite portfolio size in mind. “I think this is going to be opportunistic and bottom-up in nature,” says Williams.
SBA executives have not yet decided which of their current portfolios will supply the assets to fund the new managers, waiting instead to see what the relative value of other asset classes will be at the time allocations are ready to be made. Williams points out, for example, that the recent big growth in the global equity portfolio makes it the best choice to draw funds for a new ex-U.S. activist fund portfolio currently under construction. Although the activist funds, selected with the help of Wilshire Associates, will also be a part of the strategic investment portfolio, they will be in a separate bucket from the hedge funds, Williams says.
