07/28/2010

Pension Targets Commodity Vehicles

Philadelphia Public Employees is getting ready to make its first investments in commodity funds.

The $5 billion pension system is acting on an asset-allocation study that recommended a 5% allocation for so-called real assets, including commodities. Though the study was completed a few months ago, pension officials are just now researching the commodities market and evaluating investment targets with the goal of generating a short list of fund managers by yearend.

When pensions carve out real-asset allocations, they typically invest in tangible assets such as oil, timber and land. But at least initially, Philadelphia Public Employees expects to focus mainly on hedge funds that invest in commodity futures. The first few investments will likely be made through funds of hedge funds.

Later on, the pension may target oil-and-gas vehicles that have a private equity-like structure, as well as commodity-related stock funds.

Separately, Philadelphia Public Employees recently increased its allocation for hedge fund investments to 10% from 6%. In the future, investments in funds that include a commodity component as part of a broader strategy, such as global macro, will likely come out of the hedge fund bucket, not the real-asset account.

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