Until now the fund has been using Wellington as its large-cap value equities manager. “We are going out and doing a search for a new manager but without prejudice in the sense that we are also going to invite Wellington to participate in the search,” said Ken King, deputy treasurer of the fund.
The fund was created just over five years ago following an out-of-court settlement between the US government and tobacco companies. Under the agreement, tobacco companies have to make annual payments to finance tobacco-related healthcare across the different states. Around 70 per cent of the money received by the state of Oklahoma goes into the Tobacco Settlement Endowment Trust Fund, which is managed by a number of different external managers.
“Our asset allocation is 60 per cent equities and 40 per cent fixed income,” Mr King explained. “Because the fund has only been in existence for five years, we’re hiring new managers to look at the different asset classes that our consultants think would be appropriate.”
In February, for instance, the fund hired a market-neutral hedge fund manager and, as the assets grow, they are also considering other areas such as emerging markets and securities lending. “It is a pretty dynamic fund in the sense that we are still looking for more opportunities,” he says.
By the end of April the fund will receive new assets worth $43m. “Theoretically this could go on in perpetuity or until people stop smoking,” he says. “So if you think about that, in 10 years it would probably be the largest endowment trust in the state of Oklahoma.”
Mr King said that a transition manager would be used if they finally decided to replace Wellington with other of the aspiring candidates. Apart from the tobacco-free stocks requirement, managers competing for this mandate will have to show expertise in US equity, have a minimum of $400m under management in US large cap value stocks, and at least a three-year track record.
