Texas Permanent School Fund Says Goodbye To Fund-Of-Funds Approach

Nov 22 2011 | 10:20am ET

The $22.8 billion Texas Permanent School Fund, Austin, will allocate its $2.5 billion hedge fund portfolio through strategic partnerships, abandoning the fund-of-funds approach it has used to date.

The fund will consider how to choose those partners during the January 25-27 meeting of the Texas State Board of Education, which oversees the Permanent School Fund on behalf of the Texas Education Agency, Austin, reports Pensions & Investments.

Patricia Hardy, chairwoman of the committee on school finance/permanent school fund, told a board meeting on November 18 that the permanent fund’s finance committee will likely recommend strategic hedge fund partners during the board’s April 18-20 meeting.

P&I says the suggestion was made that some of the fund’s five current fund-of-funds managers could become strategic partners, but Hardy did not specify whether the selection process would be limited to existing managers or involve an open RFP.

The fund currently allocates to Grosvenor Capital Management ($770 million), Blackstone Alternative Asset Management ($637 million), K2 Advisors, ($380 million), GAM USA ($328) million and Mesirow Advanced Strategies ($317 million), Suzanne Marchman, spokeswoman for the Texas Education Agency, told P&I.

The move is expected to save the Permanent School Fund about $114 million in fees over the next five years. The fund has paid $72 million in hedge fund-of-funds fees since inception of the absolute-return portfolio four years ago.

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