Kentucky State Pension To Redeem $800M From Hedge Funds By July 2019

Nov 4 2016 | 9:36pm ET

The state of Kentucky’s pension fund has become the latest large retirement system to significantly reduce its exposure to hedge funds. 

The investment committee of Kentucky Retirement Systems voted to redeem some $800 million of the fund’s $1.5 billion invested in hedge funds by mid-2019. The first tranche of $600 million will be redeemed by the middle of next year, while the remainder will come between then and July 2019. 

The state has not identified from which hedge funds will bear the brunt of the roughly 50% allocation haircut. However, the fund’s interim executive director, David Eager, told Pensions & Investments that when the redemptions are completed in 18 months, 27 funds will be eliminated. Those considered by the pension fund to offer “high added-value” will be potentially shifted into new formats such as SMAs in order to improve transparency and liquidity. 

The move comes amid similar decisions by pension funds in California, New York, New Jersey, Rhode Island and Ontario, often in protest over high fees and mediocre investment performance. 

Direct hedge fund investments by the pension include Davidson Kempner Capital Management, Glenview Capital Management, JANA Partners, Magnetar Capital, Pine River Capital Management and Scopia Capital Management, P&I said. 

Ratification of the investment committee’s decision will be put to the $15 billion pension fund’s full board on December 1. 

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