Major pension drops longstanding traditional managers in order to divide alpha and beta

Axing investment managers is nothing new for institutional investors.  So initially we didn’t see anything particularly interesting about this story in P&I about how the pension fund for Massachusetts teachers and public employees was dumping a few of its underperforming managers.

But when we took a closer look, it was apparent that something else was at play here.  P&I reports that this move was actually a “strategic shift in the $50.6 billion system’s domestic equity program to index funds and portable alpha”. In other words: a shift out of traditional “pre-packaged” alpha and beta and into a bifurcated alpha/beta program.

A third of the freed-up capital was immediately reallocated to three portable alpha managers and two-thirds was destined for an index fund.

But the story gets even more interesting.  Bridgewater, a company we applauded for not messing around when it came to portable alpha, was actually fired in the shake-up.  Why?  Remember a couple of years ago when we told you about the firm’s plan to drop clients that didn’t want to move to a portable alpha strategy?  Well, apparently, Mass PRIM let them do just that.  According to P&I, the pension said “no way” to a pure alpha mandate and it promptly showed Bridgewater the door…

“Bridgewater Associates, which ran $591 million in global inflation-linked bonds, including an allocation to commodities via swaps, was terminated after the board rejected its request to change the portfolio to a pure alpha strategy. Bridgewater’s offer to wind it down over the coming 12 months was turned down; Mr. Mavromates said PRIM decided it didn’t want someone who wasn’t interested in managing the strategy over the long term to look after it for the coming year.”

It appears Bridgewater’s Ray Dalio wasn’t kidding.

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