Billionaire fund manager Nelson Peltz on Monday added a big new client when he took in $150 million in cash from the Arkansas Teachers Retirement System, part of a trio of welcome victories for the activist, whose portfolio has faced a bumpy ride lately.
The $14.5 billion pension fund's decision to invest with Peltz' Trian Fund Management rounded off a sweet day for the 73-year old veteran investor, who also unveiled a $2.5 billion stake in General Electric and saw his investment in chemicals maker DuPont jump 5.64 percent after CEO Ellen Kullman said she was retiring.
"The Trian team are like mechanics who can tell you what's wrong with your old car by hearing you drive up to the garage," said George Hopkins, executive director of the fund, which pays out $80 million in monthly benefits to 42,000 retirees.
Arkansas teachers first put money with an activist fund in 2008 when they bet on rival activist William Ackman's $16.5 billion Pershing Square Capital Management, in which they now invest $258 million.
Now they are adding Peltz at a time the hedge fund industry is facing its worst year since the 2008 financial crisis and both Peltz and Ackman are posting losses this year.
Despite the current red ink at Trian, Hopkins, who guided the Arkansas fund to a 5.2 percent gain in fiscal 2015, beating the average pension fund's 3.2 percent return, chose Trian for its strong, long term record. Trian posted a 9.7 percent annualized return which topped its 7.4 percent benchmark. Hopkins said he also likes the Trian pushing companies including Bank of New York Mellon and DuPont to perform better on an operational level.
Trian has won a handful of board seats without noisy proxy battles and suffered just one costly loss this year when it fell short of winning seats on DuPont's board. But with news that Kullman will be replaced, for now, by Edward Breen, investors in DuPont said Peltz' influence over the board is clear and that improvements should be in the offing.
Pershing Square, which has returned 15.4 percent on average for the teachers since 2008, sometimes pursues a noisier path of trying to shake up management and the board room at companies like Canadian Pacific Raliway Ltd, Air Products and Chemicals Inc and Zoetis Inc.
This year, Ackman and Peltz are both making a big push to get snack-food maker Mondelez International Inc to improve its margins. Ackman is pushing for a merger with Kraft Heinz Co while Peltz, who has a seat on the company's board, has been more guarded in his views.
For Arkansas this overlap could become a highly concentrated position in a company that makes Oreos cookies and Milka chocolate, enjoyed by students and teachers around the world.
"With activist investors there is likely to be some overlap because there is only a finite group of companies that managers can pick from," said Damien Park, managing partner at consulting firm Hedge Fund Solution. "But from a risk management perspective this is certainly something to watch carefully."
Hopkins said he usually aims for diversity among his managers but that Trian's ability to get companies to perform better was a selling point during investment discussions.
To be sure, the Arkansas teachers are putting only 5 percent of assets into opportunistic funds which include hedge funds, making them a much smaller player in hedge funds than the Teacher Retirement System of Texas, New Jersey State Investment Council and Maryland State Retirement and Pension System.
Those funds put a higher percentage of their portfolios in alternative investments and oversee significantly more assets.
Still even big name hedge funds like Trian, which already invests for the state of New York and the California State Teachers' Retirement System, and Pershing Square, which manages money for Massachusetts and New Jersey, want more pension fund money. Such assets typically stick around for longer and are seen as a vote of confidence.
