PERAC Issues Hedge Fund Guidelines To Mass. Retirement Systems

Dec 22 2006 | 10:48am ET

The Public Employee Retirement Administration Commission recently issued its guidelines for hedge fund investments to Massachusetts public retirement systems that are considering allocating to the asset class.

For starters, only retirement boards with investment assets in excess of $250 million may request authorization to conduct a search for hedge funds, and total investments in hedge funds cannot exceed 7.5% of portfolio assets, based on market valuation at the time of investment, according to the guidelines.

Retirement boards below the $250 million asset minimum may invest up to 7.5% of total assets in the Pension Reserves Investment Trust Fund Absolute Return segment without PERAC’s oversight. Retirement boards that invest on their own must use funds of funds exclusively for their hedge fund investments with no single fund of funds representing over 2% of the system’s total investment portfolio.

The guidelines also require that there are at lest 75 separate, underlying hedge funds in a system’s total portfolio. Retirement boards must invest in hedge funds that invest primarily in relative value, non-directional strategies as opposed to strategies where performance is largely influenced by general market movements or by movements in specialized markets like energy or commodities.

All managers are required to transmit quarterly performance and strategy review reports to the board and to PERAC, and reports from fund of funds should include information on each underlying fund. The retirement board and its consultant should meet with its fund of funds managers for a performance and strategy review at least once a year.

At the time of investment and at any time during the holding period, a particular Massachusetts retirement fund should not represent more than 10% of a hedge fund product’s total assets and Massachusetts public funds together should not represent more than 50% of the total assets in any one fund.

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