Alaska Permanent Fund To Redeem $2B from Funds of Hedge Funds

Alaska’s Permanent Fund will pull the $2 billion it has allocated to liquid funds of hedge funds and will instead make the investment decisions for that capital internally.

Funds impacted by the decision include Crestline Investors, Mariner Investment Group and Lazard Asset Management, said Permanent Fund’s director of private markets Marcus Frampton in an interview with Bloomberg. Going forward, the fund’s alternatives team will reportedly choose which hedge funds will receive capital. 

“We’ve decided to move to a 100 percent direct program,” Frampton noted in the interview. “We now have the depth of staff and this is an area [on which] we want to have some focus.”

Funds of hedge funds have come under fire in recent years as lackluster returns have placed a spotlight on the fees they charge to place investors’ capital with particular managers. 

Crestline fell 1.6% in the first quarter, while Mariner and Lazard declined 1.4% and 1.2% respectively, according to documents from the state fund cited by Bloomberg, while the HFRX Fund of Funds Composite Index was down 3% in the first quarter.

Alaska will reportedly keep the $3 billion it has invested directly in hedge funds such as AQR Capital Management and Kynikos Associates, and invest an additional $2.9 billion in managers to meet its targets over time.

Established in 1976 by law (actually an amendment to the state’s constitution), at least 25% of all mineral lease rentals, royalties, royalty sales proceeds, federal mineral revenue-sharing payments and bonuses received by Alaska are to be placed in a permanent fund, the principal of which may only be used for income-producing investments. The vast majority of proceeds from the fund are paid out to qualifying Alaska residents in the form of dividends.