Billionaire hedge fund investor Daniel Loeb will be losing Rhode Island as a client after the state's pension fund found his Third Point too risky for its taste and decided to pull out all of its money.
The state's Investment Commission, which directs how its $8 billion pension fund is invested, voted unanimously on Monday to redeem $74.3 million from Third Point, Joy Fox, a spokeswoman for Rhode Island Treasurer Gina Raimondo, said on Friday. The money will be returned on March 31.
"The purpose of the hedge fund portfolio is to reduce the (pension) fund's overall sensitivity to equity market moves," Fox told Reuters in an email.
"This fund has the highest equity market sensitivity within the state's hedge fund allocation. With this vote, the commission is further reducing the beta risk within this portion of the portfolio."
For Loeb's $14 billion fund, long considered one of the industry's best performers, Rhode Island's investment is small and will not hurt dramatically.
But hedge fund managers do not like losing pension funds as clients because their departure could send a signal about overall attractiveness to other institutional clients.
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Loeb performed well for Rhode Island last year, earning a 24.71 percent return that ranked Third Point as the state's best performing hedge fund in 2013, according to state documents. Overall the pension fund returned 14.01 percent for the year.
Rhode Island first put $50 million with Loeb's New York-based fund in 2012 and the fund's strong performance in 2012 and in 2013 helped it earn a return of 49 percent on that investment alone.
"The Commission decided to lock in gains of $24.3 million by redeeming from Third Point, and reallocate about $20 million to Samlyn, another equity hedge fund," Fox said in the email.
A Third Point spokeswoman underscored what Loeb had done for Rhode Island's teachers and other retirees.
"Third Point is pleased that Rhode Island's pensioners earned 49 percent, net of fees, over the two years they invested with us," she said.
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Fund investors had greatly benefited from its prudent investment approach across multiple market cycles, earning a net annualized rate of return of 21.3 percent since 1995, she added.
Samlyn Capital, founded in 2007 by Robert Pohly, manages $78.3 million in assets for the state and was initially hired at the same time as Loeb's Third Point. Last year it returned 19.10 percent.
Fox said the additional $20 million going to Samlyn now will be invested in a share class that has a 1.5 percent management fee and 17.5 percent performance fee, slightly lower than the traditional fees of 2 percent and 20 percent many funds charge.
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Over the years, Loeb's strong returns have made him an industry darling, with so much new money coming his way that he decided at the end of 2013 to stop taking in new money.
He made over Yahoo and helped install a new chief executive, and is now embroiled in a battle with auction house Sotheby's where he told Chief Executive Bill Ruprecht in October that it is time for him to go and that he wants a board seat.
Rhode Island Treasurer Raimondo has also drawn a lot of attention by helping reform the state's public pension system and thanks to her bid to run for governor.
But she has also been criticized for putting as much as $1.15 billion into hedge funds at a time when they are costly and have not outperformed the market. Last year the average fund gained 9.3 percent while the Standard & Poor's 500 Index climbed 32.4 percent.
Rhode Island is not alone in its commitment to hedge funds. Many states, including Massachusetts, New York, New Mexico and Texas have put millions into hedge funds, to try to boost returns after the 2007-2009 financial crisis.