Texas School Fund Mulls Fee-Saving Overhaul Of Hedge Portfolio

Jan 27 2012 | 11:19am ET

The Texas Permanent School Fund is fed up with fund of hedge funds fees.

The $25 billion endowment's already modest return from its $2.42 billion in hedge fund investments were eliminated by fees—leaving the fund with a loss. While the Texas Permanent fund invests just 16% of its assets in absolute-return and private equity funds, those funds account for a whopping 68% of its costs.

"The sector that should have enhanced our funding for schools actually detracted from it," Holland Timmins, chief investment officer, said. "We had a positive return in the asset class, modestly, but it got eaten alive by the fees."

Holland proposed at a State Education Board meeting on Wednesday hiring more in-house managers—possibly as many as 30 new employees—and getting rid of at least one of the five funds of funds to which it currently allocates.

One of the other five—Blackstone Alternative Asset Management, GAM Holding, Grosvenor Capital Management, K2 Adivsors and Mesirow Advanced Strategies—would be chosen to advise the Texas fund on allocating to hedge funds, Timmins said.

While the proposals are designed exclusively to save the fund money, a member of the its investment committee said of the funds of funds, "They will still be making plenty of money."


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