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Rating:PRIM Dumps Old-Fashioned Asset Managers for Hedgers Not Rated 0.0 Email Routing List Email & Route  Print Print
Thursday, August 07, 2008

PRIM Dumps Old-Fashioned Asset Managers for Hedgers

Reported by Sean Hanna, Editor in Chief

Bill Miller and a handful of other traditional asset managers received what must be some unwelcome news Wednesday. The famed Legg Mason portfolio manager was one of five whose mandate was pulled by the Massachusetts Pension Reserves Investment Management Board. The WSJ Fund Track reports that the other managers losing mandates were Ariel Investments, Gardner Lewis Asset Management, Mazama Capital and Nuveen's NWQ Investment Management. The five mandates total $1.81 billion in assets.

The firings, though performance-related, are part of a strategy in the Bay State pension program to shift to more passive management and a fund of hedge funds strategy. Among the winners in the change were indexer State Street Global Advisors (SSgA) and three hedge fund managers.

Michael Travaglini, PRIM's executive director, explained that "We've been managing money here for 24 years and our approach utilizing traditional long-only equity managers has not added value over that span. We're looking to set up a structure that can consistently add value."

Travaglini added that PRIM's board voted Wednesday to add another one percent of its assets -- or $540 million -- to a portable alpha sleeve managed by funds of hedge funds. That domestic equity-focused sleeve already holds a five percent allocation from PRIM. Those assets will come from the mandates of the five terminated managers. Blackstone Group, EIM Group and Austin Capital Management were the managers winning the mandate. The fund of funds sleeve already has mandates with Grosvenor Capital Management, Crestline Investors and Strategic Investment Group.

The remainder of the assets -- some $1.3 billion according to CNN -- once handled by the outgoing five are being assigned to SSgA, which will index them against the Russell 3000 index.

"We just think the risk-return profile of these strategies gives us a better chance to consistently outperform our benchmarks regardless of what market cycle we're in," Travaglini told the WSJ. "Everywhere else, we're just going to try to match the broad market."

The PRIM board voted on the manager changes on June 30 and reportedly gave disappointing returns as a reason for the terminations.

Legg Mason's share of the fund came to $638 million.

Meanwhile, Mellody Hobson, president of Ariel Investments, told the paper that the Chicago firm had managed PRIM assets for less than a full market cycle (three-and-a-half years) and said that "We've not had much time to demonstrate the merit of our approach."

Hobson added that PRIM told Ariel that it was terminating the fund's active managers as part of a complete reallocation. 

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