CalSTRS Names Global Macro Hedge Fund Advisor

(December 7, 2011) — The California State Teachers’ Retirement System (CalSTRS) — which recently earned aiCIO Magazine’s Industry Innovation Award for public pensions above $15 billion in assets under management — has announced a global macro hedge fund advisor with the selection of Lyxor Asset Management.

The California scheme’s selection of Lyxor concludes a 15-month selection process for a consultant to help CalSTRS investment staff initiate, monitor, and assess its global macro hedge fund strategy, according to a statement from the fund. 

“In these times of economic volatility and uncertainty, it’s important to diversify the CalSTRS portfolio into areas that protect against downside pressures,” said CalSTRS Chief Investment Officer Christopher J. Ailman in a statement. “We believe this strategy can help us accomplish this goal and Lyxor is vital to its inclusion into the CalSTRS portfolio during this trial period.”

Steven Tong, director of the CalSTRS Innovation & Risk unit, added: “During our search, Lyxor emerged as the top contender because of its strong track record in thoroughly vetting and overseeing global macro managers and hedge fund portfolios for large institutional investors such as CalSTRS.”

As outlined in a release by CalSTRS, some of Lyxor’s duties will be to assist CalSTRS investment staff to:

1) Develop, review and update investment policies, procedures and program structures for the strategy.

2) Develop a search strategy, identify highly-qualified managers and conduct due diligence on candidates and proposed investments.

3) Conduct regular manager assessments, perform account valuations, identify concerns and prepare quarterly reports to the CalSTRS Investment Committee.

4) Evaluate various investment structures, including managed accounts.

5) Research and analyze issues and topics in the global macro hedge fund space.

6) Provide training and workshops on global macro hedge fund topics for CalSTRS investment staff and the Investment Committee.

The move by CalSTRS follows a recent report by Hedge Fund Research that showed that within the hedge fund universe, equity hedge is heading the industry while macro funds declines. The HFRI Fund Weighted Composite Index gained +2.43% for October. The gain ended a two-month decline and followed a third quarter drop of -6.5%, the fourth worst calendar quarter performance in history, according to the research firm. 

“Hedge funds posted gains for October concentrated in Equity Hedge and Event Driven strategies, as managers adjusted exposures intra-month in response to rapidly improving condition across equity and credit markets,” said Kenneth J. Heinz, President of HFR, in a statement. “The primary focus for managers, as well as the primary catalyst for financial markets, continues to be the European sovereign debt crisis, with the outlook having improved despite the continued likelihood of volatility and unpredictable political developments. In the current environment, fund managers are looking to maintain tactical flexibility to opportunistically adjust exposure to dynamic market conditions, while maintaining core exposures to constructive portfolio themes across equity, credit, commodity and currency markets.” 

According to HFR, while equity hedge strategies had the largest positive contribution to index performance in the month, event-driven funds also posted gains on improved equity markets. On the other hand, macro funds posted declines on trend reversals, despite positive contributions from commodity exposures and discretionary managers.

Along with CalSTRS, other institutional investors have responded to hedge fund gains by pumping up their commitment to the asset class. In October, the roughly $78.6 billion State of Wisconsin Investment Board (SWIB) increased its investment into hedge funds. “SWIB’s move into hedge funds has been slow and deliberate beginning in January 2010 with the approval of the asset allocation that included a hedge fund strategy,” Hearing said, noting that the money used to fund the hedge fund portfolio came from rebalancing during market changes into cash, or a liquidity fund.

Click here to read an aiCIO exclusive interview with two of the most influential chief investment officers in America – Chris Ailman of CalSTRS and Joe Dear of CalPERS.