Allstate Aims For 'Lite' Fund-of-Funds

Mar 24 2006 | 7:10pm ET

Allstate Investments plans to invest 5-10% of its defined benefit pension fund assets with "lite" fund-of-hedge fund managers by year-end, meaning those that employ a 130-long, 30-short strategy, according to David Walsh, chief investment strategist for the plan. This type of strategy uses 30% of assets to go short, and then reinvests the profits into long-only equities, allowing the fund to increase its long-only exposure to 130% without employing leverage. He described the "lite" fund as a product in-between a long-only fund and a hedge fund.

Walsh, speaking at a Portable Alpha conference in Manhattan earlier this week, said the plan is also working on implementing a portable alpha program. The new program will hire managers to handle up to 10% of the plan's portfolio, which is $3.1 billion, according to the 2006 Standard and Poor's Money Market Directory.

Despite Allstate's foray into alternatives, Walsh isn't particularly keen on invest-ing in hedge fund products that are structured as limited partnerships. Instead, he thinks that managed accounts are a better choice for defined benefit plans because they are more transparent.

"It's a higher-cost approach to hedge funds," he said, "but it eliminates operational risk." He said he is willing to give up some performance for the transparency offered by a managed account. Walsh said that Allstate is planning to hire someone dedicated to managing the portfolio's hedge fund program, though he didn't give a timeframe for the move. The plan is currently interviewing two finalists for its first portable alpha investments, and expects to make a hire by the end of April.


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