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Another Massachusetts Pension Fund Wants In To Hedge Funds

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LEXINGTON, Mass. (–Add the Town of Lexington Retirement System to the list of small- and mid-sized pension funds in Massachusetts that want access to hedge funds.

The problem Lexington and other smaller pension funds face is that the state’s Public Employee Retirement Administration Commission, which oversees and regulates public pension systems, does not allow funds with less than US$250 million in assets to invest in hedge funds.

Officials at the US$83 million Lexington system have said they may seek a waiver from Somerville-based PERAC. Joseph Connarton, PERAC’s executive director, said he had heard that the Lexington Retirement System wanted to invest in hedge funds and that it might file for a waiver, but he added fund officials had not yet filed any documents to that effect with the commission.

Lexington Retirement System officials did not return calls by press time seeking comment.

“We have not had any formal communication with the board on it, but we understand they are in discussions,” Mr. Connarton said. “They [Lexington] do not qualify under current guidelines, but we will certainly talk to them.”

Mr. Connarton said that some members of the board of trustees overseeing the Lexington Retirement System had investment experience, which might help the fund make its case to PERAC.

Another option for Lexington might be to join other smaller public pension funds in investing some of its assets in a pooled fund along with the US$32.7 billion Massachusetts Pension Reserves Investment Management Board, Boston. MassPRIM recently hired five hedge fund firms, with which it plans to invest 5% of its assets (seePrevious HedgeWorld Story). There has been talk of offering smaller pension funds access to those hedge fund firms via a “sleeve fund,” Mr. Connarton said, but it remains unclear exactly how or if that would work.

MassPRIM officials did not return calls by press time seeking comment.

Beyond that, Mr. Connarton said PERAC has had a number of informal requests for access to hedge funds from smaller public pension funds–enough to make him consider opening discussions with PERAC board members later this year on revising the commission’s hedge fund investment guidelines.

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