DuPont is studying whether its $17 billion defined benefit plan should adopt portable alpha strategies. It is also considering hiring external fund of hedge fund managers for the first time.
DuPont Capital Management in Wilmington, Del., oversees $25 billion pension assets, including $17 billion from the company's pension fund. "For the time being we're considering portable alpha for the internal pension fund, but if we see some interest we would certainly consider offering it to other pension funds," said Rafi Zaman, managing director of U.S. equities. He anticipates the firm will decide by year-end whether to go ahead.
"A lot of our peers are looking into [portable alpha]," Zaman said, and the fund didn't want to miss out on a potential opportunity. Public markets are expected to deliver single-digit to low double-digit returns, so it makes sense to consider other strategies, he continued.
DuPont Capital Management already offers long/short equity and market-neutral strategies, but it is studying externally managed fund of hedge funds to see if they add any value. The fund is looking into whether the alpha in hedge funds is sustainable given the vast amounts of money flowing in. Alternatively, alpha could be taken from other asset classes, Zaman continued, but there would be some hedging strategies involved to take out market risk.
DuPont's pension fund invests 56% of its assets in equity, 29% in bonds and 15% in private equity, primarily buyout investments, and real estate. It has pared back its overweight to international equity, including emerging market equity, to 22% from 25-6% because after the recent run-up these markets look fairly priced, Zaman explained. The fund doesn't use a consultant.