The Massachusetts state pension fund, which invests $6 billion with hedge funds, on Tuesday hired two new managers, SECOR Asset Management and East Lodge Capital.
Trustees for the $60 billion fund voted to put $150 million each with New York-based SECOR and London-based East Lodge Capital and said they may hire three more hedge funds this year.
The two firms join industry powerhouses Brevan Howard, Elliot Capital Management, and Pershing Square Capital Management in a group of roughly two dozen hedge funds that invest money for the state.
But SECOR and East Lodge will invest the money in managed accounts, more custom tailored structures that often come with lower fees and more insight into how the money is invested.
Last year, Jason Mudrick‘s Mudrick Capital and Chris Hentemann‘s 400 Capital Management were among the first to begin managing money for the state through managed accounts.
Massachusetts, which has some of the largest hedge fund allocations of any public pension fund in the United States, has long pushed for fee cuts at expensive hedge funds and now has some $1 billion invested through managed accounts.
“There are no greater skeptics of hedge funds than PRIM,” said Michael Trotsky, the pension fund’s executive director and chief investment officer, referring to the state’s Pension Reserves Investment Management Board. Trotsky added his team vets funds carefully and looks for managers who may not yet be household names.
Last year the pension fund earned a 1.1 percent return, fueled mainly by strong returns from its private equity investments. Hedge funds lost money for the fund in 2015 but have made money over the longer term.
East Lodge, founded by hedge fund CQS alumnus Alistair Lumsden in 2013, concentrates on structured credit.
The hedge fund, SECOR Alpha fund, has roughly $500 million in assets, concentrates on macro bets among others, and is managed by Ray Iwanowski. It gained 9.1 percent last year and has returned an average 13.2 percent per year since its launch in 2012.
The state, which has long been underweighted in distressed investments, also said it would allocate up to $125 million to the Anchorage Illiquid Opportunities V fund, a private debt fund run by Anchorage Capital, one of the hedge fund firms already being used by the state.
Many distressed debt funds have suffered tough times recently. Mudrick Capital, for example, lost 26 percent last year and lost money in January as well, but managers say now is the time to get in for bets that may pay off later.
The state also took $1.6 billion out of stock funds managed by Janus Capital and Pacific Investment Management Company and put it into an index fund run by State Street Global Advisors, saving the state some $4.5 million in fees a year.
(Reporting by Svea Herbst-Bayliss; editing by Frances Kerry and Tom Brown)