The Employee Retirement System of Texas and the Pacific Alternative Asset Management Company (PAAMCO) have teamed to build a co-investment platform that will seed emerging hedge funds.
The partnership, dubbed PAAMCO Launchpad, will boost the growth of emerging managers. PAAMCO, a $30 billion fund of funds, and the $28 billion Texas state pension program are looking for managers with the most promise in the EM arena. The venture is looking to pump in $3 billion to help these fledgling hedge funds.
The joint venture also allows the Texas pension system to expand its $1 billion emerging manager program, which aims to boost its EM investments to roughly 10% of its outsourced portfolio.
Hedge fund veteran Andrew Gitlin will head the joint endeavor, with Jeff Willardson, PAAMCO’s head of portfolio solutions, running the due diligence procedure. Gitlin’s 30 years of hedge fund experience includes pioneering a seeding platform in 1992 with DKR Capital, a firm he founded in his early days after leaving Chase Manhattan Bank.
He said that the Texas-PAAMCO undertaking “offers an intriguing value proposition that can unlock the potentially superior performance and private equity-like benefits embedded in early-stage hedge fund investing.” Gitlin told CIO that by its fifth year, the plan will consider “recycling assets into new managers” and hopes to see the seeded managers “running robust healthy firms that can stand on their own.”
The program is also not looking to assist emerging hedge funds in any specific sector, instead focusing on performance opportunity.
One of Texas’s portfolio managers, Panayiotis Lambropoulos, will lead the PAAMCO Launchpad efforts for his fund. He said that the model “has the potential to be an industry standard” for discovering and investing in emerging hedge fund managers.
The Employee Retirement System of Texas could not be reached for comment.