UPDATE 1-Arden tapped to help Massachusetts invest in hedge funds

Tue May 20, 2014 2:56pm EDT

(Adds details on pension fund's program, returns, plans)

By Svea Herbst-Bayliss

BOSTON May 20 (Reuters) - Massachusetts' pension fund has selected Arden Asset Management as its hedge fund investment adviser from a handful of applicants for the job of picking fund managers, tracking performance and providing due diligence, the company said on Tuesday.

The $58 billion pension fund's investment committee tapped the New York-based money manager as the winner of its hedge fund advisory services bid, a spokesman for the pension fund said. The full board, which generally follows the investment committee's recommendations, will vote on the choice on June 17.

The pension fund, which has long invested in alternative assets such as hedge funds and has bets with billionaire managers William Ackman and Daniel Och, spent four months interviewing firms that responded to the request for proposals issued in January.

Three years ago Massachusetts moved to make direct bets with hedge funds, joining a number of big institutional investors who were going it alone to save on fees and have a bigger say over how their money was invested.

In 2011 the pension fund tapped consulting firm Cliffwater to help it with the direct investing program when it stopped using the middlemen which had brought investors and hedge fund managers together.

Cliffwater's contract expires this year.

Seeking to save money and find the industry's best managers, Michael Trotsky, the pension fund's chief executive and chief investment officer who once worked as a hedge fund manager himself, also beefed up internal staff.

Last year the Massachusetts pension fund's direct hedge fund investments saved it $29 million in fees, earning the recognition of industry publication Institutional Investor as "Public Pension Plan of the Year."

Massachusetts' hedge funds investments gained 12.6 percent last year, helping the entire fund earn a 15.2 percent return, or $7.9 billion. The average hedge fund returned 9 percent last year, lagging the Standard & Poor's 500's 32 percent gain.

Massachusetts and Arden have a long history of working together. It was one of the funds of funds, along with K2 Advisors, Grosvenor Capital Management and RockCreek Group, which invested money for the pension fund with hedge funds.

When these middlemen were terminated, Arden lost one mandate. But it won another because it was selected as transition manager to help transfer about $2.8 billion from the funds of funds directly to hedge funds.

Under the new mandate, Arden will not manage any state funds but be a consultant for its investments. (Reporting by Svea Herbst-Bayliss, editing by Richard Valdmanis and Richard Chang)

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