Wisconsin Embraces HFs for the First Time

(February 19, 2011) — The $84 billion State of Wisconsin Investment Board (SWIB) made its first-ever allocation to hedge funds this week.

The fund is allocating $100 million to Capula Investment Management LLP, Reuters reported, reflecting the increasing attractiveness of hedge funds among institutional investors, supported by a recent report from Preqin that revealed institutional investors now constitute the largest piece of the hedge fund capital pie.

In 2010, the Wisconsin fund decided to put about 2%, or $1.4 billion, of its $73.5 billion core fund with hedge funds in the next months via direct investments. It plans to select between 15 and 20 managers.

In January, SWIB said it had invested $600 million with two risk parity strategy managers  to achieve diversification and continued solid returns. SWIB allocated $300 million each to AQR Capital Management and Bridgewater Associates’ All Weather vehicle. The funds will be coming from cash and the multi asset liquidity fund, which is managed internally. According to the board, the additional risk parity portfolios are part of a plan to offer further diversification for the WRS Core Trust Fund. “We first approved this asset allocation in January, and we knew this would be a very slow process,” Vicki Hearing, SWIB public information officer, told aiCIO in August of last year.

The revised strategies are part of SWIB’s new allocation targets for its $64.6 billion core fund, which the board adopted last January. The target allocation incorporates 28% US equities, 25% international equities, 26% fixed income, 7% TIPS, and 6% each private equity, real estate, and absolute return and multiasset strategies, according to its strategy submitted by Chief Investment Officer David Villa and Executive Director Keith Bozarth.

The new allocations come as the board announced its Core Fund had a preliminary return of 15.6% for 2010, while its $5.6 billion Variable Fund returned 12.3%, surpassing its benchmark by 0.2 percentage points. “While US stocks ended with a strong performance, uncertainty about economic recovery continues,” Keith Bozarth, executive director, said in a news release from the board. “Housing remains weak and the unemployment level remains high in the U.S. In addition, concerns over the global credit markets remain,” he said. “A change in direction for those factors would be a positive sign for improved economic growth.”