MassPRIM CIO on Shedding Fund-of-Funds: A Liquidity Reality Check

Arden Asset Management is likely losing its mandate to manage MassPRIM's hedge fund allocation as a fund-of fund manager, but it has assumed a new role for the scheme, helping to transition the scheme's hedge fund assets to direct investments. 

(May 14, 2012) — The $50 billion Massachusetts Pension Reserves Investment Management (MassPRIM) has hired Arden Asset Management to transition the scheme’s hedge fund assets to direct investments.

While the asset manager may be losing its mandate to manage the public fund’s hedge fund of funds portfolio, it will serve as the scheme’s transition manager — moving some $2.7 billion from its hedge fund of funds program to direct hedge fund investments.

“We look at hedge funds not as illiquid because we can get money back in six months to a year,” MassPRIM’s Chief Investment Officer Stanley Mavromates told aiCIO. “It’s also not like you’re selling Apple stock, which you could sell within three days,” he joked.

He added: “We could get our hedge fund money out earlier, but we’d be flooded with penalties — we’re not in any rush because we understand our liquidity profile and can follow redemption schedules. This is a reminder to institutional investors to understand their liquidity profiles.”

Arden, which managed $560 million for MassPRIM as of March 31, is facilitating the transfer of more than 20 hedge fund firms in which the public pension fund invests directly. About 90% of the transition will be done by January 2013, with the process due for completion by July 2014. Mavromates said. The transition will reduce the state’s allocation to funds of funds from $3.5 billion to $750 million.

In April, MassPRIM’s board approved plans to end dealings with its four fund-of-funds providers — Arden, K2 Advisors, and RockCreek Group, while allowing one of its funds of funds, Pacific Alternative Asset Management Co., to hold onto its $750 million mandate. Meanwhile, it began its process of searching for a firm to aid in the transition of those assets to the hedge funds with which MassPRIM began investing directly last October.

Related article: Study Shows Large US Pensions to Boost Direct Hedge Fund Allocations

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