By Kristen Schultheiss
Emerging hedge fund managers were a persistent topic of
focus throughout the discussions at SkyBridge Capital's
SkyBridge Alternatives (SALT) conference in Las Vegas.
Stuart Bernstein, senior investment manager at Teacher
Retirement System of Texas, and Philip Larrieu, an investment
officer at California State Teachers' Retirement System
(CalSTRS), both offered perspectives on deal sizing, strategy
and merits of early-stage investing in separate panel
Larrieu seemed to be a bit more hesitant in investing in
emerging managers for the CalSTRS hedge fund portfolio. "Public
pension funds don't like to be the first one in the fund," he
said - although he added that CalSTRS had been an early
investor in Trian Partners as well as Blue Harbour Group.
Once an emerging manager has already attracted one pension
fund investor such as CalSTRS, then it is easier for the
manager to be approved by other similar plans, Larrieu said. As
a $184 billion scheme, the California system typically
allocates $100 million to individual hedge funds. So it is
structurally difficult for CalSTRS to make such a large
commitment to an emerging manager, according to Larrieu.
CalSTRS has made a recent allocation, however, to Legion
Partners, a start-up Los Angeles-based activist manager that
CalSTRS has seeded. "Our reasoning for the commitment comes
down to our familiarity with the team, their focus on true
small-cap investing, which is hard to find, and the
attractiveness of their economics and alignment of interests,"
said Ricardo Duran, spokesman for the retirement system.
The $200 million commitment to Legion Partners took place in
February as part of CalSTRS' corporate governance portfolio
within its global equities asset class. All activist managers
are placed within the fund's corporate governance portfolio and
do not appear under the absolute return asset class. CalSTRS
overall has less than a 1% allocation to its absolute return
The $117 billion Texas Teachers' retirement system has a 12%
allocation to hedge funds. According to Bernstein, the Texas
scheme has 48 different hedge funds of various strategies in
its portfolio - often ranging from $100 million to $200 million
in investment size.
He believes that building a portfolio of smaller managers
may greatly benefit the performance of the system's overall
hedge fund portfolio. "We are very much investing in funds that
we believe are going to grow," he said.
Bernstein revealed that the Texas system makes smaller
investments of $5 million to $10 million in new managers as
part of its emerging manager programme. The investment
committee will consider managers with a minimum 18-month track