Key Takeaways
- • Kentucky Retirement Systems investment committee recommended $300 million in hedge fund allocations to its board of trustees, reaffirming commitment to the strategy despite recent high-profile exits by other major pension funds.
- • KRS approved initial investments of $20–30 million each in Anchorage Capital Partners, BlackRock's Global Alpha Opportunities fund, and Finisterre Global Opportunity fund, while increasing target allocation to Prisma (KKR's hedge fund-of-funds arm).
- • New allocations will replace existing positions in Pacific Alternative Asset Management Company and Blackstone Alternative Asset Management but maintain KRS's 10% target hedge fund allocation across its $15 billion portfolio.
- • Executive Director William Thielen announced his departure effective September 1, 2016, following governance upheaval that included Governor Matt Bevin's removal of board chair Thomas Elliot in April and the subsequent declined appointment of replacement William Smith.
- • KRS's recommitment to hedge funds contrasts sharply with New York City Employees' Retirement Systems' recent decision to exit hedge funds entirely and California Public Employees' Retirement System's similar 2014 withdrawal from the strategy.
Summary
The Kentucky Retirement Systems investment committee moved forward with a $300 million hedge fund allocation recommendation Thursday, signaling continued conviction in alternative strategies despite significant governance turmoil and a broader industry trend toward hedge fund exits among large public pension systems.
The new capital will be deployed across three fund managers: Anchorage Capital Partners, BlackRock's Global Alpha Opportunities fund, and Finisterre Global Opportunity fund will each receive initial commitments of $20–30 million. Additionally, KRS recommended an increased target allocation to Prisma, KKR's hedge fund-of-funds platform. These investments are structured as replacements for underperforming positions held in Pacific Alternative Asset Management Company and Blackstone Alternative Asset Management. According to CIO David Peden, the new allocations will not alter KRS's strategic 10% target hedge fund allocation. As of March 2016, the $15 billion pension and insurance fund held $1.6 billion in absolute return strategies.
The committee's hedge fund recommitment arrives amid significant personnel and governance disruption. Governor Matt Bevin issued an executive order on April 20 removing board chair Thomas Elliot, citing concerns over fund performance and transparency. Bevin subsequently appointed dermatologist William Smith to replace Elliot; however, Smith declined the position. In a related development, Executive Director William Thielen—who had previously announced his retirement but remained in post due to lack of a successor—confirmed Thursday that he would officially step down on September 1.
KRS's decision to double down on hedge funds stands in marked contrast to recent moves by other major pension systems. The $55 billion New York City Employees' Retirement Systems voted to eliminate hedge funds from its portfolio entirely, while the California Public Employees' Retirement System made a similar exit in 2014. This divergence reflects ongoing debate among institutional investors regarding hedge fund performance, fee structures, and strategic fit within diversified portfolios.
The new capital will be deployed across three fund managers: Anchorage Capital Partners, BlackRock's Global Alpha Opportunities fund, and Finisterre Global Opportunity fund will each receive initial commitments of $20–30 million. Additionally, KRS recommended an increased target allocation to Prisma, KKR's hedge fund-of-funds platform. These investments are structured as replacements for underperforming positions held in Pacific Alternative Asset Management Company and Blackstone Alternative Asset Management. According to CIO David Peden, the new allocations will not alter KRS's strategic 10% target hedge fund allocation. As of March 2016, the $15 billion pension and insurance fund held $1.6 billion in absolute return strategies.
The committee's hedge fund recommitment arrives amid significant personnel and governance disruption. Governor Matt Bevin issued an executive order on April 20 removing board chair Thomas Elliot, citing concerns over fund performance and transparency. Bevin subsequently appointed dermatologist William Smith to replace Elliot; however, Smith declined the position. In a related development, Executive Director William Thielen—who had previously announced his retirement but remained in post due to lack of a successor—confirmed Thursday that he would officially step down on September 1.
KRS's decision to double down on hedge funds stands in marked contrast to recent moves by other major pension systems. The $55 billion New York City Employees' Retirement Systems voted to eliminate hedge funds from its portfolio entirely, while the California Public Employees' Retirement System made a similar exit in 2014. This divergence reflects ongoing debate among institutional investors regarding hedge fund performance, fee structures, and strategic fit within diversified portfolios.
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