Pa. SERS Hedges Its Bets

Pension: The Pennsylvania State Employees’ Retirement System

Advisors: Arden Asset Management, The Rock Creek Group, Mesirow Financial, Morgan Stanley, PAAMCO, Robeco Sage Capital

Mandate: Funds of Hedge Funds

The Pennsylvania State Employees’ Retirement System (PA SERS) is upping its exposure to high-risk, high-return portfolio allocations, hiring new funds of hedge funds. The strategy supplants a more traditional, actively managed equity portfolio.

Pa. SERS has hired Arden Asset Management and The Rock Creek Group to manage its international fund of hedge funds. Each firm will oversee $650 million of the state pension fund’s money. The domestic fund of hedge funds, Mesirow Financial, Morgan Stanley Alternative Investment Partners, PAAMCO and newcomer Robeco Sage Capital, will manage an additional $650 million. The fund has also tapped First Quadrant to manage $200 million in worldwide investments.

The pension fund will rely on S&P swap contracts for its base-line returns and will try to beat the market by relying on funds of hedge funds. The strategy change won’t affect the pension fund’s venture and private equity investments, which make up 14% of its total fund.

The fund’s active equity managers were not consistently outperforming the market after they took their fees, says spokesperson Bob Gentzel.

The announcement follows news from June in which Pa. SERS disclosed a number of private equity investments. At the end of May the pension approved six more private equity fund allocations totaling $338 million, with Permira Advisors, Cerberus Capital Management, GTCR Golder Rauner and New York Life Capital Partners among those receiving commitments.