Montana Sniffs Out Funds of Funds

May 14 2008 | 2:00am ET

The $13 billion Montana Board of Investments may be on the lookout for fund of hedge funds managers, though it remains wary about a commitment. The pension is considering the issuance of a request for proposals in an effort to get more information about the asset class.

Two years ago, the board’s consultant, R.V. Kuhns, completed an asset liability study of the system, suggesting several portfolio mixes that, when interacting with the plan’s liability requirements, would expect to generate the returns required to protect and increase funding levels, while adequately providing liquidity for benefit payments.

Given a maximum 5% allocation to hedge funds, each of the scenarios suggested putting in all 5%. Since the study was completed, the consultant has provided board members educational presentations on the asset class. Two months ago, additional information was provided by two fund of hedge fund managers, Blackrock Alternative Advisors and Grosvenor Capital Management.  

According to minutes from its May meeting, Carroll South, executive director, and Clifford Sheets, chief investment officer, recommended that the pension authorize its staff to issue a RFP for fund of hedge fund, without making any commitment to fund the managers, to help the board decide whether or not it wants to make the leap into funds of hedge funds.

“This process would permit staff to explore the hedge fund-of-funds manager universe, including historical performance relative to other asset classes during good and bad times—and the different types of strategies available in the market,” according to a memo. “This knowledge would better equip staff to make an informed recommendation to the Board regarding investing in the asset and an appropriate mix of strategies and number of managers if the Board chooses to invest in this asset. By issuing a RFP, the Board would not commit to any contractual or funding obligations.”

According to the memo, the RFP would contain language including “Issuance of this RFP in no way constitutes a commitment by the Board to award a Contract” and “…the Board, in its sole discretion, reserves the right to cancel or terminate this RFP.”

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