Blackstone, San Francisco form $1 bln hedge fund deal

  • Blackstone to manage $500 mln fund of hedge funds
  • Firm to advise SF staff on $500 mln direct program
  • SFERS a longtime LP in Blackstone PE, RE funds

San Francisco Employees’ Retirement System green-lit a $1 billion deal with Blackstone Group‘s hedge fund business at its June 8 meeting.

Blackstone will manage a $500 million customized fund of hedge funds on behalf of San Francisco, according to retirement system documents. SFERS staff will collaborate with Blackstone on hirings, terminations and changes to its allocations.

The $343.7 billion asset management firm will also advise SFERS on a new $500 million direct hedge fund program managed by the retirement system’s internal investment staff.

The program will give SFERS access to Blackstone’s entire hedge fund platform, including the firm’s diligence reports and written recommendations, an investment memo said.

The retirement-system board approved the investment by a 5-1 vote.

The final terms of the account remain subject to negotiation, according to San Francisco documents. The retirement system did not disclose the account’s proposed fee structure “to protect the negotiating interests” of SFERS, according to a staff memo.

The commitment is the $20 billion retirement system’s first with Blackstone’s hedge fund group. San Francisco is a longtime limited partner in the firm’s private equity and real estate funds, having committed $530 million across 10 vehicles over the past 23 years, according to pension documents.

San Francisco staff was bullish on Blackstone’s hedge fund performance, pointing to the 3.43 percent return generated by its flagship Partners OS fund.

“This fund was in the top five for its returns in 2008 (negative 15.5 percent) and all other relevant time periods for the period January 2005 through December 2014,” SFERS staff wrote in a memo.

Blackstone’s hedge fund group, Blackstone Alternative Asset Management, managed $68.5 billion as of the end of the first quarter.

The total includes $31 billion in the form of customized hedge fund accounts for clients like Texas Municipal Retirement System and Missouri State Employees’ Retirement System, according to San Francisco documents.

Blackstone’s hedge fund solutions group generated $36.4 billion in economic income through a highly volatile first quarter, a 59 percent drop from the same period in 2015. Even so, total assets under management grew 3 percent year over year to $68.6 billion.

Action Item: Blackstone’s account with SFERs: