Rhode Island pension told to exit hedge fund Luxor Capital

Rhode Island's state pension fund was urged to pull millions of dollars out of Luxor Capital Partners after the hedge fund posted heavy losses for months, according to a memo seen by Reuters.

Influential industry consultant Cliffwater, which advises on roughly $55 billion in alternative assets invested in hedge funds, recommended that the Employees' Retirement System of Rhode Island (ERSRI) ask to pull its $35 million out of Luxor.

"Cliffwater recommends that ERSRI redeem from Luxor Capital Partners, L.P," Cliffwater senior managing director Thomas Lynch wrote in the memo dated March 16. Such a recommendation by Cliffwater could have a knock-on effect in the investment community, especially at a time when investors consider how to react to hedge funds that are posting big losses.

A skyline view of Providence, Rhode Island
Tupungato | Getty Images
A skyline view of Providence, Rhode Island

Cliffwater's memo has not been previously reported.

Lynch said Luxor, a $4 billion fund that specializes in picking stocks, has underperformed due to "poor investment selection and inadequate hedging."

In the two years between March 2014 and February 2016, Luxor posted an average 18.3 percent annual loss, Lynch wrote in the memo.

A spokesman for the state pension fund did not immediately respond to a request for comment. Luxor also did not immediately respond to emails seeking comment.

In January Cliffwater told Rhode Island that it was watching Luxor, founded by Christian Leone, very closely and might recommend pulling out.

At the end of 2015, Luxor's largest position was Yahoo Inc , which has dropped 22 percent in the last 12 months.