This is the second hedge fund closing to affect the state’s $50 billion pension fund in less than a year, the news report said. In September, the state lost more than $50 million with the collapse of Amaranth Advisors LLC (SeeSan Diego County Fund Sues Amaranth).
However, the biggest loss from the Sowood closing appears to be within the Harvard University endowment, which the Globe said is maintaining an official silence on the issue. Harvard’s endowment lost at least $250 million – half of the $500 million it invested at Sowood’s inception in 2004.
The executive director of the Massachusetts Pension Reserves Investment Management Board, Michael Travaglini, confirmed the $30 million loss but said hedge funds represent only about 5% of total Massachusetts pension investments. The money the state lost on Sowood was indirectly invested through a fund-of-funds that invests in hedge funds, similar to the state’s investments in Amaranth, the news report said.
As with other hedge funds, Sowood was invested in corporate bonds and related securities that have been weakened by failures in subprime mortgages (See Two Hedge Funds Fall Victim to Subprime Mortgage Woes ).