By Svea Herbst-Bayliss
BOSTON (Reuters) - Rhode Island's state pension fund on Wednesday turned its back on one of its hedge funds, as its investment commission voted unanimously to exit Luxor Capital following months of poor performance, a spokesman for the fund said.
The action came after influential industry consultant Cliffwater, which advises on roughly $56 billion in alternative assets, recommended that the Employees' Retirement System of Rhode Island remove its money from Luxor.
Pension fund spokesman David Ortiz said in an email the state will receive $35 million back by June 30. It originally invested $50 million with Luxor in 2014.
Reuters first reported Cliffwater's recommendation and the fund's decision to follow it.
Earlier this month Cliffwater, which advises a number of state, city and county pension funds as well as private and public colleges on which alternative assets to include, told the pension fund in a memo that it was time to get out of Luxor.
Recommendations from industry consultants such as Cliffwater can carry significant weight in the investment community, especially at a time investors are mulling how to react to hedge funds that are posting big losses.
Cliffwater's Thomas Lynch said the $4 billion hedge fund has underperformed because of "poor investment selection and inadequate hedging." At the end of the year, one of its biggest positions was Yahoo (NASDAQ:YHOO) Inc, whose shares have fallen 22 percent in the last 12 months. Northstar Realty Finance Corp, another big holding, has dropped 67 percent in the last 12 months.
In the two years, between March 2014 and February 2016, Luxor posted an average 18.3 percent annual loss, Lynch wrote.
Luxor did not respond to emails seeking comment.
In January, Cliffwater said it was watching Luxor very closely and might recommend pulling out.
This was not the first time Luxor had come in for extra scrutiny from Cliffwater. In 2014, only months after it was hired by the state, Cliffwater placed Luxor on a watch list. By early 2015, Cliffwater said management had turned things around, according to minutes of the April 29, 2015 meeting.
By year's end 2015, however, Luxor was down double digits.
Last year, investors redeemed roughly 8 percent of their money from Luxor, a number roughly in line with what investors do every year, a person familiar with Luxor's business said.