The North Carolina Retirement Systems is poised to pour billions into alternative investments, but it's not necessarily a good move for hedge funds.
The $63.5 billion public pension fund has approved a new asset allocation that will increase its target alternative investments allocation by 9%. But North Carolina also did away with a separate 1% hedge fund allocation and will likely terminate some of the fund of hedge funds managers that currently fill it.
The plan has increased its private equity allocation to 4.5% from 3.5% and its real estate allocation to 8% from 6%. But the bulk of the new alternative investments will be made in North Carolina's inflation-protected and credit strategy allocations: Each was raised from 1.5% to 4.5% of assets, Pensions & Investments reports.
The new allocations will be funded from the equity and hedge fund allocations.
Some of North Carolina's funds of funds will likely be kept on as part of the inflation-protected and credit portfolios. How many join them remains unclear; the state legislature has authorized the pension to invest up to 5% of its assets in either portfolio in hedge funds.
"Hedge funds… can be utilized in either allocation," Shawm Wischmeier, chief investment officer of the system, said. "Whether or not to utilize a hedge fund structure will depend on the investment opportunity."