Trustees of the $6.5 billion fund will interview on Nov. 16 merger arbitrage managers Kellner, DiLeo & Co. and Arnhold & S. Bliechroeder, both of New York. They will decide Nov. 17 whether to hire one or both of the firms to manage between $50 million and $60 million.
The hedge fund allocation is part of the pension fund?s alternative asset class, which totals about 6% of the fund and is invested mainly in private equity, said Bobby Beale, investment officer for the fund. Trustees chose merger arbitrage because of its low correlation to other equity investments.
The assets are parked temporarily in a Russell 2000 index fund managed by State Street Global Advisors.
Mr. Beale said he did not believe more money would be invested in hedge funds immediately following this initial allocation.
‘They (the investment committee) have discussed convertible arbitrage, but it has been merely discussed,’ he said. ‘Nothing more would happen in the next year.’
But in mid to late first quarter of 2001, Mr. Beale expects an additional $50 million allocation to private equity. Future private equity allocations will come-up annually in order ensure the fund is fully invested in the asset class. The pension fund generally overcommits itself by 1½ times the private equity allocation as a way to remain fully invested, since returns often come in faster than they can be reinvested.
‘Ideally, what we want is to have the distributions we get during the year to fund the commitments so it kind of funds itself,’ Mr. Beale said.