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Alternatives review: Portsmouth fund to redeem core real estate stake, redeploy into uncorrelated strategies
Summary
Greystone and Morgan Stanley’s OCIO described four alternative investments the fund holds — two real‑estate mandates and two hedge funds — and said the board’s manager has begun redeeming the ARA core property fund with proceeds expected through 2026 and plans to redeploy into strategies that provide uncorrelated returns.
At the board’s request Greystone and Morgan Stanley’s OCIO gave a focused explanation of the retirement fund’s alternatives allocation and why the managers hold those strategies. Mark Dichik (Morgan Stanley OCIO) explained that alternatives are broadly intended to provide uncorrelated returns to stocks and bonds and come with higher fees and varying liquidity.
He described the four alternative holdings in the portfolio: an ARA core property fund (open‑ended core real estate), a Lual net‑lease real estate fund, Hudson Bay (a relative‑value hedge fund), and Schoenfeld (a multi‑manager, long/short hedge fund). The ARA core property fund was described as having modest absolute returns in recent years and facing low transaction velocity across the sector; Greystone said it had initiated a slow redemption and that remaining proceeds are expected to be returned into 2026.
On the Lual net‑lease fund, presenters said the strategy targets roughly an 8 percent net return and that the fund has delivered about an 11 percent annualized return to date; managers called those investments “bond‑like” because tenants pay operating expenses and leases are investment‑grade. Hudson Bay was described as a relative‑value manager targeting mid‑ to high‑single‑digit returns through relative trades; Schoenfeld was described as a multi‑manager platform that aims for low‑double‑digit net returns through many small, risk‑managed allocations.
Mark said the team’s near‑term intention is to continue getting back capital from the underperforming core real estate fund, evaluate the strategic asset‑allocation targets (including the 8 percent alternatives target), and redeploy proceeds into strategies that deliver uncorrelated, risk‑managed returns for the plan. He emphasized the board will be asked to approve any material redeployments.
The managers noted alternatives are diverse in liquidity and complexity: open‑ended core funds offer ease of redemption when possible but can be limited by market velocity; closed‑end private funds offer different return dynamics. Greystone said it will propose specific replacement strategies after completing its asset‑allocation study.
