PrintLONDON (Reuters) - The New York State Common Retirement Fund has invested $250 million with emerging markets manager Finisterre Capital in a further sign pension plans are backing hedge funds despite losses during the credit crisis.
The $126 billion fund, the third largest pension plan in the United States and already an investor with Finisterre, has provided the seed capital for the Finisterre Emerging Markets Fund, a feeder into Finisterre's three existing hedge funds.
NYSCRF's investment will be locked up for two years, although it will be able to shift weightings between the three funds every quarter.
Despite hedge fund losses of around 19% in 2008, pension funds have tended to stick with these portfolios more than wealthy individuals have, partly because pension plans tend to take a long- term approach to investment and partly because they were stung by even greater losses from equity mutual funds.
"There's been increasing interest from institutional investors and they're obviously larger tickets," the CRF's Chief Investment Officer Paul Crean told Reuters.
Last year the share of hedge fund industry assets owned by institutions such as pension funds and university endowments passed 50%, according to the Alternative Investment Management Association.
Mr. Crean said only 0.4% to 0.5% of U.S. pension funds' assets were in emerging market debt.
"People have been surprised by how well emerging markets came out of the financial crisis. They feel they are underweight given where growth is going to come from in the next five-to-10 years," he added.
Finisterre, whose assets fell to $420 million during the credit crisis, now manages $935 million in assets.
Mr. Crean said the firm was able to attract NYSCRF's investment in part because it did not bar investors from exiting its funds during the credit crisis. He added that investors were impressed by smaller-than-average losses, which were due to exposure to collapsed bank Lehman Brothers rather than bad market calls.
The fund will initially invest 25% of its assets in Finisterre's Sovereign Debt fund and 75% in its flagship Global Opportunity fund, until NYSCRF completes due diligence on the Special Situations fund.
NYSCRF is then expected to invest 25% each in Sovereign Debt and Special Situations, which returned 51% and 45%, respectively, in 2009, with the remaining 50% in Global Opportunity.
Mr. Crean said the feeder fund will launch a share class for other external investors on March 1, offering equal-sized investments into each of the three hedge funds.
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