Pension funds have held separately managed stock and bond accounts with mutual funds for years. But more exclusive hedge funds have been reluctant to go this route, arguing that any special deal with one client could prompt others to ask for the same thing and that this kind of tailoring could cause them administrative headaches.
"I'd characterize it as a conversation that very few (hedge funds) are willing to have," Trotsky said. The individual hedge funds declined to comment.
Over time though, Trotsky hopes that hedge funds see the creation of separately managed accounts as a win-win proposition where the state and manager can work more collaboratively.
For example, if the pension fund had a managed account with a skillful manager who is sitting on a pile of cash, the state might suggest that the manager take on a little more risk and put more money to work. "Managed accounts allow us to tailor the program and better meet our needs," Trotsky said.