PIMCO Snags Harvard Talent | Chief Investment Officer

Pacific Investment Management Co., the manager of the world’s biggest bond fund, has hired John Devir for its credit-analyst team -- after he accepted a position as a managing director at Harvard University’s $27.6 billion endowment.

(July 13, 2011) — Pacific Investment Management Co., the manager of the world’s biggest bond fund, has hired John Devir after he accepted a position as a managing director at Harvard University’s $27.6 billion endowment.

While Devir was scheduled to begin this month working at Harvard Management Co., where he would have been in charge of developed market stocks, he changed his mind and joined PIMCO as an executive vice president. At Harvard, Devir would have reported to Stephen Blyth, head of internal management.

Describing the structure of Harvard’s endowment, aiCIO wrote in its Summer 2009 issue: “One of the rarer features of the Harvard endowment is its hybrid nature–a portion of the money is managed internally while the rest is invested with external managers. The benefit is clear: Have the manager with the best track record investing your money and you’re likely to get the best returns, regardless of where they work. Under Meyer, Harvard did just that. Instead of sticking to internal managers, Harvard pursued the best investors wherever they were.”

It’s not the first time PIMCO has feasted on Harvard talent. Mohamed El-Erian re-joined PIMCO at the end of 2007 after serving for two years as president and CEO of Harvard Management Company, leaving on short notice. At PIMCO, he is now expanding the firm’s lineup of funds, Bloomberg reported. El-Erian’s successor at Harvard, Jane Mendillo, took over the endowment in July 2008.

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Similarly, in 2006, Jack Meyer, the former head of Harvard University’s in-house management arm of Harvard Management Co., left to join hedge fund Convexity Capital Management.

Previously, Devir was managing director and head of equity strategies at Barclays Capital Inc. Before that position, he spent three years in a similar role at Lehman Brothers and was director of U.S. and European equity proprietary trading at Credit Suisse First Boston.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Three Louisiana state pension funds’ failed attempts to withdraw assets from hedge fund Fletcher Asset Management have drawn the attention of the Securities and Exchange Commission.

(July 13, 2011) – High-profile hedge fund Fletcher Asset Management has come under question by the Securities and Exchange Commission (SEC) after it failed to meet a redemption request placed by two Louisiana state pension funds, the New York Times reported.

Three Louisiana state pension funds – the Firefighters’ Retirement System of Louisiana, the Municipal Employees’ Retirement System of Louisiana and the New Orleans Firefighters’ Pension and Relief Fund – invested about $100 million in Fletcher’s Income Arbitrage (FIA) Fund in 2008. According to the NYT, when two of the funds requested to withdraw funds in March, Fletcher denied the request and instead issued promissory notes that will mature in two years.

In a statement from the pension systems involved, they said that, “The distribution of a promissory note in lieu of immediate cash has raised concerns with each of the system’s respective boards…It gives rise to questions regarding the liquidity of the FIA fund and the accuracy of the financial statements issued by two renowned independent auditors.” According to a report from the Wall Street Journal, the Firefighters’ Retirement System of Louisiana and the Municipal Employees’ Retirement System were the two funds to initially request a withdrawal; in early July, the New Orleans Firefighters’ Pension and Relief Fund made a similar request.

This controversy follows an investment in FIA by the pension funds that promised returns between 12% and 18%. If returns were lower than 12%, Fletcher would skim from other investors’ returns to reach that threshold; if returns were higher than 18%, the pension funds would forfeit any excess return and settle for 18% returns instead, the NYT reported.

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The lucrative deal was made possible by the design of FIA, which instead of investing directly in markets invests exclusively in other investment vehicles run by Fletcher. FIA, which is the flagship fund for Fletcher, would then receive favorable returns because it held “preferred shares” of the other vehicles, according to the WSJ. As a result, the fund has not had a month with negative returns in more than 11 years, and in 2008, FIA produced 12.6% returns even though the vehicles that it invested in lost 42.8%.

The SEC investigation adds to the current controversy surrounding Fletcher. According to the NYT, Alphonse Fletcher, Jr., who runs the hedge fund, sued the Dakota apartment building in New York City for racial discrimination; the Dakota is fighting the suit, claiming that Fletcher was denied an apartment because of concerns about his financial situation. Additionally, independent filmmaker Seven Arts Pictures is seeking at least $1.5 million in damages from Fletcher after he pulled out of an agreement to help fund a film.

<em>By Justin Mundt</em>