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Rhode Island Puts Och-Ziff, Brevan Howard, Others On the Chopping Block

The pension announced it will yank nearly $600 million from seven firms as part of a broader move to go back to basics.

  • Amanda Cantrell

Rhode Island’s State Investment Commission today announced plans to redeem $585 million from seven hedge fund firms as part of a plan announced earlier to steer its portfolio toward more traditional investments over the next two years.

The firms are Ascend Capital, Brevan Howard Asset Management, Brigade Capital Management, Emerging Sovereign Group, Och-Ziff Capital Management Group, Partner Fund Management, and Samlyn Capital. The pension expects the process of redeeming from the funds to be completed by the end of its fiscal year, according to a statement.

The firm announced in late September that it wanted to pull back on its hedge fund program, with state general treasurer Seth Magaziner citing performance as the reason for the decision. “While our pension system has achieved positive performance and beaten our benchmark since I took office, I believe that we can do better,” Magaziner said in a press release at the time. He added that the bulk of the pension’s nearly $8 billion in assets would be invested in low-fee index funds and other traditional investments in a plan it dubbed “Back to Basics.”

Rhode Island is the latest in a string of public pension plans to cut back on hedge fund investments or retreat from them altogether. The New Jersey State Investment Council announced in August that it will trim its $71.9 billion pension’s investments in hedge funds to 6 percent of assets from 12.5 percent. In April the New York City Employees’ Retirement System voted to dump its $1.5 billion hedge fund portfolio in favor of traditional assets, also arguing that the performance didn’t justify the high fees.

The moves come as the hedge fund industry is struggling with several consecutive years of mediocre aggregate performance, along with increasing redemptions and pressure on managers’ historically high fees. Data tracker eVestment reported earlier today that investors pulled $10.3 billion from hedge funds in September, bringing the third-quarter total to $29.2 billion. That’s the worst quarter for redemptions since the first quarter of 2009, during the global financial crisis, the firm reported.

Rhode Island said its pension fund has returned 6.20 percent this year, besting its benchmark by 43 basis points. Among its hedge fund investments, Brevan Howard, one of the pension’s largest hedge fund investments, posted an annualized loss of 1.38 percent for the pension over the past three years and was down 2.54 percent for the year through September. Emerging Sovereign Group’s ESG Cross Border Equity Fund was down 7 percent through September. The leveraged version of Ascend’s Ascend Partners Fund II long–short equity fund had fallen 6.3 percent through August.

Additional reporting by Stephen Taub.