Florida Pension Dives Into HFs and Infrastructure

(June 9, 2010) — For the first time, the Florida Retirement System (FRS) will move into hedge funds, reflecting the fund’s move toward a greater exposure to alternative investments.

“We’re trying to find a way to maintain and improve our return while re-selecting the type of risk we’re taking,” Florida State Board of Administration spokesperson Dennis MacKee said to ai5000.

The changes are the outcome of an asset / liability study presented Monday by board consultant Ennis Knupp.

The system could invest 6% of its assets in hedge funds — 2% in infrastructure, and an unspecified amount into timberland. The fund will combine U.S. and international equities into a single global equity asset class under changes approved by the Florida State Board of Administration’s trustees, MacKee said.

Under plans recently approved by the Florida State Board of Administration, which oversees a total of $133.9 billion in assets, the $109.5 billion Tallahassee-based system will additionally up its allocation to private equity to 5% from 3.5% and debt-oriented funds to 3% from 1.8%. To lower costs and risk, trustees approved funneling more money into internal management and fixed-income allocations. “We believe we have the capability and expertise to expand the internal management of the passively managed fixed-income assets,” MacKee stated.

The new targets for FRS’ hedge fund allocation will consist of 2% each to absolute-return, long/short equity, and open mandate strategies. The new allocation, which targets a 52% allocation to global equity and replaces the existing allocations of 37.4% to domestic equity and 20% to non-U.S. equity, will raise the debt-oriented funds to 3% from 1.8%. The system’s hedge fund consultant, Cambridge Associates, will assist the system in searching for hedge fund managers, MacKee confirmed.