PERAC Memo #43 - 2006: Revised Hedge Fund Investment Guidelines
Revised Hedge Fund Investment Guidelines
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This memo announces PERAC's revised hedge fund investment guidelines, increasing the permitted allocation to hedge funds/absolute return strategies from 5% to 7.5%. Systems with at least $250 million in assets may seek PERAC authorization to run competitive searches for their own hedge fund managers, while smaller systems may continue investing through PRIT's Absolute Return strategy without additional PERAC action; boards investing independently should note the guidance requiring use of funds of funds, diversification standards, and enhanced due diligence expectations.
Full Text
Memorandum # 43/2006
M E M O R A N D U M
To: All Retirement Systems
From: Joseph E. Connarton, Executive Director
Subject: Revised Hedge Fund Investment Guidelines
Date: October 26, 2006
At its meeting of September 25, 2006, the PERAC Commission voted to increase the permitted
asset allocation to hedge funds / absolute return strategies from the existing 5% to 7.5%.
PERAC’s revised hedge fund guidelines are attached.
Retirement systems with total portfolio assets of at least $250 million may continue to request authorization to conduct competitive search processes to hire their own managers. Systems below that level may continue to invest in the PRIT Absolute Return strategy without PERAC regulatory action.
In addition to the higher permitted allocation levels, the revised guidelines make it even more explicit that systems investing on their own should restrict their hedge fund investments to funds of funds. Because diversification is so important in this sector, the guidelines also offer guidance on expected diversification among funds of funds and on how many separate hedge funds should be owned within the total hedge fund allocation. There is further discussion on the types of strategies that systems should look for in their hedge fund products and the statistical performance statistics that should be considered. The guidelines also dwell on some of the various areas of concern that should be included in the due diligence process.
If there are any questions on any aspect of these guidelines, please contact either myself or the Investment Unit.