Massachusetts State Pension Fund Selects HedgeMark for Managed Account

Massachusetts’ Pension Reserves Investment Management (PRIM) has selected HedgeMark to provide hedge fund managed account services, extending the state’s relationship with its custodian, BNY Mellon.

“Managed accounts are similar to the separate account structure used by PRIM in our equity and fixed income allocations. The principal benefits of managed accounts include direct asset control, full holdings transparency, mandate customization, and improved fee terms,” says Eric Nierenberg, senior investment officer and director of Hedge Funds and Low Volatility Strategies at PRIM.

The PRIM board oversees the Pension Reserves Investment Trust (PRIT) Fund, which pools the assets of the Massachusetts Teachers’ and State Employees’ Retirement Systems, as well as the assets of county, authority, district, and municipal retirement systems that choose to invest in the PRIT Fund. As of the end of June, the fund had $60.6 billion in assets. PRIM’s long-term target asset allocation to hedge funds is 10%.

In January, PRIM issued a request for proposals for these services, for which it received 14 proposals. PRIM’s evaluation committee then narrowed down the proposals to seven finalists: Arden Asset Managemet, HedgeMark, Lighthouse Partners, Lyxor, Pacific Alternative Asset Management Company (PAAMCO), Sigma Analysis and Rock Creek.

Upon interviewing each finalist and performing their due diligence, the committee unanimously recommended HedgeMark, which PRIM’s board then unanimously approved this month, subject to successful contract negotiations.

PRIM’s evaluation committee recommended HedgeMark for a variety of reasons, including the experience and size of its staff (over 100 people, more than any other finalists), and despite the company only being formed in 2009, the committee took note of Hedgemark’s full acquisition by BNY Mellon in May.

“The recent acquisition of HedgeMark by BNY Mellon, PRIM’s current custodian, produces the highest business stability among the finalists,” the committee wrote in its evaluation report.

The committee also noted that HedgeMark’s proposed fee of 15 basis points of assets under management was among the lowest bids received, and the firm will be able to handle complex investment while giving PRIM flexibility to choose hedge fund managers, fund structures, service providers, counterparties and investment guidelines.

In addition, HedgeMark’s technology proved to be a differentiator, as the committee noted the access to daily risk and performance data, as well as customizable reporting.

The exact amount PRIM will allocate to the managed account is unclear, though the fund does want to continue using this type of account for future investments. “While there is no specific target for the managed account portion of the hedge fund program, best efforts will be made to utilize managed accounts for both current and prospective hedge fund investments going forward.”