MassPRIM Says Direct Move 'The Right Thing To Do'

Aug 20 2012 | 11:57am ET

Massachusetts' state public pension system has moved more than half its hedge fund portfolio from funds of hedge funds to direct investments, and isn't looking back.

The $48.8 billion Massachusetts Pension Reserves Investment Management board has no second thoughts about its decision last year to all-but do away with funds of funds. "We were paying an extra 84 basis points over standard direct management fees on our funds-of-funds investments," Steven Grossman, Massachusetts state treasurer, told aiCIO. "On $5 billion, that's $36 million. We haven't been particularly happy with our returns on those investments. And with funds of funds, they do the due diligence, and we're simply more comfortable doing it ourselves."

So far, Grossman says, about 60% of MassPRIM's hedge fund portfolio consists of direct investments. "It's going well," he said. "We're steadily moving funds. Certain assets we can get at right away, others we have to wait."

And, he adds, "all indications so far say it was the right thing to do."

"You might as well own directly, get close to the source, keep due diligence internal, and save $36 million," he told aiCIO. "We're looking forward to cutting out the middle man and working closely with a group of 20 or so hedge funds that we've selected ourselves."


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