Rhode Island fires Och-Ziff and 6 other hedge funds

October 26, 2016 5:25 PM EDT

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By Svea Herbst-Bayliss

BOSTON (Reuters) - The state of Rhode Island voted on Wednesday to exit seven hedge funds, including Och-Ziff Capital Management, which last month agreed to pay a $400 million fine to settle foreign bribery charges.

The state's Investment Commission, which directs how its $7.7 billion pension fund is invested, asked for $585 million back from funds whose performance had been uneven, a spokesman said. Och-Ziff has been asked to return $103 million while Samlyn Capital will return $106 million.

The state also asked for all of its money back from Partner Fund Management, Emerging Sovereign Group, which used to have a partnership with Carlyle Group, Brigade Capital Management, Brevan Howard Asset Management and Ascend Capital. Viking Global Investors was asked to return $51 million, or half of the money it manages for the state.

In September, the state decided to cut its allocation to hedge funds to 6.5 percent from 15 percent. State Treasurer Seth Magaziner said the move was part of his "Back to Basics" plan where the state expects to invest some of the money being returned by hedge funds in more traditional assets.

Rhode Island joins a growing list of state pension funds, including New Jersey and New York, currently cooling on hedge funds as they have underperformed but charged high fees.

Investors have pulled $29.2 billion out of global hedge funds during the third quarter, putting 2016 on track for the first annual outflows since the financial crisis, research firm eVestment said on Wednesday.

Och-Ziff has been managing money for the state since 2011 and has returned 6.73 percent since then. While it was once a favorite with large pension funds, it has seen redemptions tick up, shrinking assets to $37 billion now from $44 billion at the start of the year. A spokesman for the hedge fund declined to comment.

Rhode Island is not abandoning all hedge funds.

It is keeping its money with Davidson Kempner Capital Management, Elliott Associates, Capula Investment Management, DE Shaw Group, Graham Capital Management and Winton Capital Management, for now, a spokesman said. DE Shaw, for example, has been managing money for the state since 2011 and returned 13.8 percent.

(Reporting by Svea Herbst-Bayliss; Editing by David Gregorio)



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