Stuart Imeson

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West Yorkshire Pension FundInvesting in Fund of
Hedge Funds (FOHF) Case Study

• Stuart Imeson
• Head of Pensions and Investments

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Developing a Strategy For Investing in FOHFs

• Undertook Asset/Liability Study
• Identified optimal investment portfolio needed to
  deliver required returns to achieve 100 funding
  
• Look to extend diversification and reduce risk
  within optimal portfolio
• Decision taken to include Hedge Funds in portfolio

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Actual Strategy for Investing in FOHFs

• Up to 5 of total investment portfolio
• Spread investment over 3 year period
• Looking for return of 7.5 per annum (net of
  fees)
• Investment (260 million) from Cash Balances
  and Annual Positive Cash-Flow

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Fund Specific Benchmark 2006/7
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Process for Selection of FOHF Managers

• OJEC Advert
• Consultant (bfinance) devised quantitative and
  qualitative questionnaires
• 61 FOHF from 54 Managers submitted an offer by
  completing questionnaires

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Process for Selection of FOHF Managers (continued)

• Quantitative criteria
• a. gross annualised performance over 3 years
• b. worst quarter over 3 years
• c. management fees
• Qualitative criteria
• a. team size
• b. team stability
• c. liquidity
• d. strategy, activity, risk taking
• e. due diligence process
• f. capacity of underlying managers

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Process for Selection of FOHF Managers (continued)

• Quantitative screening
• 27 Managers/offers strong
• 34 less competitive
• Qualitative Overlay of 27 above
• 14 Managers/offers very strong
• 13 less compelling
• WYPFs Head of Pensions and Investments, and
  External Investment Advisers, reduced 14 to 10
  and interviewed 10 managers
• 5 FOHFs recommended to, and approved for
  investment in, by WYPFs Investment Panel

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5 FOHFs Selected
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Annualised Performance, Volatility and Risk to
31/03/06
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Monitoring and Review of FOHF Investments

• Monthly performance reports from FOHF managers
• Quarterly reports on events impacting on
  strategies adopted
• 6-monthly meeting by Head of Pensions and
  Investments External Investment Advisers with
  FOHF managers
• Annual meeting by Investment Panel with FOHF
  managers
• Confirmation annually of continuance of
  investment programme in FOHFs

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