10/24/2012

Blackstone Wins Arkansas Pension Mandate

Blackstone Group will lead Arkansas Public Employees on its maiden foray into hedge fund investing.

The alternative-investment behemoth beat out five other fund managers to win a $100 million mandate from the pension plan. Blackstone’s multi-manager unit has set up a limited partnership to run money solely for the retirement system. The Delaware-domiciled Blackstone Apers Fund was registered with the SEC on Oct. 2 with assets of $120 million. It’s unclear whether the manager contributed the additional $20 million.

Arkansas’ $6 billion retirement system for state, county and municipal workers historically has shunned hedge funds as too risky and complex, and has plowed the bulk of its capital into equity and fixed-income investments. But stock-market fluctuations and low fixed-income returns have prompted the pension to reevaluate its strategy.

In February, executive director Gail Stone set out to demonstrate to the board of trustees that hedge fund investments could help mitigate volatility in the pension’s portfolio without increasing risk. She invited fund-of-funds manager Grosvenor Capital to make a presentation arguing that case. In April, the board authorized a $100 million commitment for a so-called “fund of one,” to be extended or liquidated after three years.

The pension’s investment consultant, Callan Associates, looked at a universe of 41 managers and presented the trustees with a shortlist of six. Along with Blackstone and Grosvenor, it included Crestline Investors, Lazard Alternatives, Mesirow Advanced Strategies and Prisma Capital. The board made its decision within the past month.

Customized, separately managed accounts have been gaining in popularity since the global financial crisis. Pensions like the idea of being able to invest in a basket of funds, as they would via a fund of funds, but with more control over the liquidity terms and investment strategy. Last month Pennsylvania State Employees hired investment consultant Albourne Partners to help move $25 billion of the pension’s investments into fund-of-one accounts.

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