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
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 asset class.
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