Knoxville Pension Names New Hedge Fund of Funds Manager
Knoxville is the third largest city in Tennessee, and doesn’t often rate a national financial story, despite the city’s well-known charm and hospitality. We are thus happy to report that Knoxville City Employees’ Retirement Pension Fund named Blackstone Alternative Asset Management to run $10 million in a hedge fund of funds. This was confirmed Mike Cherry, executive director of the $416 million retirement plan.
Mr. Cherry said in a telephone interview that in early 2009, the fund terminated Union Bancaire Privee, which had exposed about $1 million of the pension plan’s hedge fund allocation to Bernard L. Madoff Investment Securities.
UBP had invested less than 1% of assets ($700 million) in Madoff funds. The Bank offered in March 2009 to partially pay back eligible investors one-half of the funds they first invested with Madoff.
On May 8, 2009, a lawsuit against the Union Bancaire Privee was filed on in the name of New York investor Andrea Barron by law firm Bernstein Litowitz Berger & Grossman LLP in Manhattan in U.S. District Court in Manhattan. The lawsuit is seeking class-action status for investors in UBP Funds as of Dec. 11, 2008, and damages, including the return of management fees.
“(UBP) had done reasonably well,” Mr. Cherry said, noting that the termination came as a result of due diligence related to the Madoff exposure and liquidity issues.
Mr. Cherry said the UBP assets had been used to fund benefit payments.
He said the pension fund also has about $10 million in a hedge fund of funds run by Cadogan Management.
Mr. Cherry said the fund’s allocation to hedge funds of funds was cut two percentage points earlier this year, to 5%.
The pension fund’s current target asset allocation is 60% equities, 19% fixed income, 15% real assets — real estate, private equity and energy and commodities — 5% hedge funds of funds and 1% cash.
Blackstone Group, which owns Blackstone Alternative Asset Management, reported at the end of 2009 revenues of $1.8 billion, compared to $349 million revenues in 2008.
Cadogan Management, a hedge fund from which a swath of the top management, including the chief executive, resigned after talks over a management buyout fell through, was spun off from parent Fortis Bank. The hedge fund, which has $3.6 billion assets under management, Fortis and BNP Paribas, which acquired a group of assets from Fortis, was spun off in 2009.
Previously announced talks over a management-led buyout collapsed before the spinoff amid disagreements on financial and other terms. The collapse led to the exodus of the founder and chief executive Stuart Leaf, the chief investment officer, Paul Isaac, and Michael Waldron, the chief risk officer. Those executives returned to the spun-off entity.
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