South Carolina To Shrink, Restructure Hedge Fund Portfolio

South Carolina's public pension manager plans to cut its hedge fund portfolio while increasing its direct hedge-fund investments.

The South Carolina Retirement System Investment Commission has cut its hedge fund target to 15%, from 20%, Pensions & Investments reports. The commission, which runs the $27.3 billion South Carolina Retirement Systems, will also restructure the hedge fund portfolio, re-categorizing the hedge funds included in it.

South Carolina currently invests $5.5 billion in hedge funds and $3.9 billion in a separate portable alpha program, which has a 15% target. The portable alpha portfolio will be liquidated, with up to $1 billion remaining to be redeemed, although some portable alpha managers may be moved into the new, smaller hedge fund portfolio, chief investment officer Hershel Harper told P&I. Among the firms that might be spared the chop are Bridgewater Associates and D.E. Shaw Group.

Direct hedge-fund investments would make up more than half of the new hedge fund portfolio, with the target for such investments up from 5% to 8%. South Carolina will seek low correlation, low beta funds to fill that portfolio, and manager searches are likely, Harper said.

While the overall hedge fund target is shrinking, South Carolina could actually wind up with a larger hedge fund investment than before under the new asset allocation, which allows for up to 7% of its portfolio to be invested in hedge funds with higher beta than traditional asset classes, which would be assigned to those portfolios, rather than the hedge fund portfolio.

The overhaul is expected to take nine months.