Penn. Pension Puts PAAMCo On Watch

Nov 1 2010 | 11:58am ET

Another public pension fund is taking a closer look at its relationship with Pacific Alternative Asset Management just days after it emerged that the fund of hedge funds firm was under investigation.

The Pennsylvania State Employees' Retirement System has placed the firm on watch, Pensions & Investments reports. PennSERS spokesman Robert Gentzel would not specify the Securities and Exchange Commission probe as the reason for the move, but noted that "PAAMCo is receiving heightened monitoring—which by definition puts them on our watch list."

Last week, PAAMCo was fired by the Los Angeles Water and Power Employees' Retirement Plan. That pension, which had $36 million invested in PAAMCo, cited an August court decision awarding Paloma Partners founder S. Donald Sussman a substantial equity stake in PAAMCo's parent company.

Losing PennSERS would be a much harder blow: PAAMCo manages $1.3 billion for the $24 billion system. But Gentzel did not sound as if the pension was preparing to pull the plug.

"PAAMCo has been one of the top-performing managers in our absolute return program and has exceeded our expectations, achieving an annualized return of 5.5% after fees," he said.

The SEC launched its probe in the wake of the August decision, in which U.S. District Judge Richard Sullivan wrote that PAAMCo's arrangement with Sussman "may have been designed to mislead a number of observers, from the tax authorities to the SEC to entities wishing to invest in women-owned businesses." PAAMCo has denied that allegation.

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