US Public Pension Funds are an important institutional group in the hedge fund investor universe and many of these investors have plans to make additions to their hedge fund portfolios over the course of 2012. A number of public pensions have recently made fresh allocations to hedge funds and evidence suggests that this trend is likely to continue over the coming year.
Preqin’s Hedge Fund Investor Profiles database currently tracks 264 public pension funds based in the US that are investing, or actively considering investing, in hedge funds. The mean current hedge fund allocation amongst these investors is 7.2% which is below the average target allocation of 8.7%, showing that many investors have the opportunity for fresh allocations in 2012. Teacher Retirement System of Texas is an example of such an investor, having announced plans to more than double its hedge fund allocation in 2011. The retirement system has made several new allocations since then taking its allocation to approximately 6% and it hopes to reach 9% by the end of 2012. Montgomery County Employees' Retirement System has also revealed that it plans to increase its hedge fund allocation by 2% over the next 12 months.
2012 is also likely to see several US public pension funds entering the hedge fund asset class for the first time. San Jose Federated City Employees’ Retirement System is one investor with plans to enter the asset class in 2012 and it could allocate up to 25% of its total assets under management to hedge fund investments. Others, such as Sonoma County Employees’ Retirement Association, are currently receiving education on the asset class and so may be open to allocations later in the year. Oregon State Treasury is an example of an investor that has recently entered the asset class, when it committed USD 100 million to the AQR Delta Fund at the end of 2011, and it is looking to add further hedge fund investments in 2012.
Overall, US public pension funds are enthusiastic about the benefits of investing in hedge funds and this is reflected in the increased activity amongst this investor group in the early part of 2012. Many of these investors are targeting new hedge fund investments and increased allocations and as a result they will be an important source of institutional capital for fund managers in 2012.