SACRAMENTO, CA – The California Public Employees’ Retirement System (CalPERS) has selected Blackstone Alternative Asset Management (BAAM) as the strategic advisor for the pension fund’s $1 billion hedge fund program.
New York-based BAAM, a business unit of the Blackstone Group, was selected from a pool of 24 firms that responded to CalPERS search. Under the hedge fund program, BAMM’s responsibilities will include working with CalPERS staff to:
- Source and screen hedge fund opportunities;
- Provide assistance with due diligence, research and performance reporting;
- monitor overall risk management of the program; and
- establish standards for disclosure and partnership structures.
CalPERS internal investment staff will make final decisions on specific investments in the hedge funds.
“Blackstone is an industry leader in the hedge fund marketplace,” said Michael Flaherman, Chair of CalPERS Investment Committee. “We’re counting on them to leverage both their experience as an investor and advisor to help us build relationships with top hedge fund managers and successfully position CalPERS as the investor of choice in the hedge fund industry.”
In October 2000, the CalPERS Board agreed to establish a $1 billion hedge fund program. CalPERS Global Equity and Alternative Investment Management staff solicited 35 potential investment advisors. CalPERS received 24 responses who were pared down to a list of finalists who were interviewed in April. Candidates were evaluated on the quality of their proposed strategy, presence in the hedge fund industry, risk management, and cost.
Hedge funds employ alternative investment strategies that allow the fund manager to invest in both long and short investments. CalPERS program will target funds that take equity exposure while limiting the amount of credit exposure. It is expected that 10 to 15 hedge fund investments will be made between $50 and $100 million.
“We are going to invest cautiously, intelligently and prudently in the hedge fund market,” said William D. Crist, President of CalPERS Board of Administration. “Our focus will be conservative, experienced hedge fund managers who can add value to the CalPERS portfolio while not taking on additional risk or leverage.”
“I believe CalPERS has an important role in helping to shape the hedge fund market,” added Flaherman. “If the hedge fund market is going to be successfully institutionalized, concrete steps need to be taken. Hedge funds need to be less opaque and have better frameworks for risk management. We hope to work with Blackstone to see that greater progress is made.”
CalPERS has a strong relationship with the Blackstone Group through the System’s private equity portfolio. CalPERS has invested $475 million in four of Blackstone’s private equity funds – two buyout funds, a mezzanine fund, and a telecom-focused fund.
CalPERS utilized the search exchange capability of Wayne, Pennsylvania’s InvestorForce.com and the firm’s hedge fund database (Altvest.com) to complete the competitive search process.
CalPERS is the nation’s largest public pension fund with assets totaling more than $151 billion. The System provides retirement and health benefits to more than 1.2 million state and local public employees and their families. For further information on the System, please visit CalPERS web site at www.calpers.ca.gov.