A Colorado Pension Is Winding Down Long/Short Equity and Raising Its Diversifiers Target: A GP Playbook for Pitching a Pension That Wants Uncorrelated Return Streams

This week the Fire and Police Pension Association of Colorado (FPPA) approved $240 million of new hedge fund commitments, $200 million to Millennium's flagship multistrategy fund and $40 million to NovaCore, while its diversifiers book stood at 11.1% of a $7.74 billion long-term portfolio against an 11% target. Earlier this year it decided to wind down its dedicated long/short equity allocation and raise its target weighting to diversifying strategies. We set out the numbers in our report on the commitments. This playbook covers what a manager should do if their strategy could sit in a bucket like that. It is our advice, not guidance from FPPA.

Know what the bucket contains

FPPA describes its diversifiers allocation as covering global macro, multistrategy, low-beta long/short equity, alternative beta and opportunistic strategies. That is a broad list, and the first job is to place yourself in one category honestly. A pension that has just closed a dedicated long/short equity allocation is unlikely to welcome a high-beta long/short pitch described as diversification. If your fund is a low-beta equity strategy, say so, show your net exposure and explain why it belongs in the diversifiers bucket rather than the one the pension closed. If you are a macro or multistrategy manager, you are closer to where the money actually went this week.

Show what you add, not just what you earn

A pension that is at target does not need more diversifiers in aggregate. The 0.1 percentage point gap between 11.1% and 11% is small, so new money to one manager implies a decision about the others, though FPPA has not said so. Your pitch therefore has to answer a replacement question: why would your strategy do a better job than a manager already in the bucket? Give the pension your correlation to equities and bonds over a full cycle, your performance in the worst quarters, and the specific risk your strategy hedges that the existing book does not. Avoid headline returns that cannot be separated from market direction.

Think in ticket sizes

The two tickets were $200 million and $40 million, which is a 5 to 1 split. We do not know the reasoning behind that, but the gap shows a pension willing to write a very large cheque to a single platform and a much smaller one to a niche strategy. A smaller, specialised manager can set expectations accordingly. A $40 million ticket to a differentiated market-neutral strategy is a real relationship at a pension of this size, and it is a more realistic first target than a nine-figure mandate. Check your capacity against that range before you take a meeting, and be ready to say what share of your fund a ticket of that size would be.

Expect questions on fees and liquidity

Neither commitment came with disclosed terms, so treat fees and liquidity as open. Prepare a clear statement of your management fee, any pass-through expenses and your redemption terms, and compare them with the multistrategy platform benchmark you expect the pension to use. Put your answers in a diligence pack before the first call so the conversation moves to substance.

Time the approach to the pension's calendar

FPPA approved these commitments in one round, which suggests it works through manager decisions in batches. We do not know its meeting calendar, and the date of its next decision is not public in anything we have read, so ask. A manager who arrives just after a round has been approved is usually early for the next one, and that gives you time to complete diligence and to send the pension the evidence it will want when the bucket is next reviewed. Use that gap to stay visible without asking for money: send a short note when your strategy has a notable quarter, when a key person joins, or when your correlation figures change materially.

What a good first email contains

Keep it short. Name the category you belong to, give your net exposure and correlation to equities in one sentence each, state the ticket range you can accommodate and offer your diligence materials. Do not claim the pension is looking for your strategy, because it has not said so. Reference the facts that are public, such as its decision to raise its diversifiers target, and leave the interpretation to the reader. Then ask one question, such as whether the investment staff would find a call on your strategy useful.

Read the wider LP mood

The pension's move sits inside a broader pattern. Our playbook for being the manager an LP keeps as 15% of LPs plan to cut their rosters covers that pressure, and our playbook for pitching a pension that needs distributions covers the cash flow side. A pension buying a hedge fund for diversification is thinking about the whole portfolio, not just the fund in front of it.

Next steps

Use the next few weeks to place your strategy, prepare the replacement case and collect the documents above. FPPA is a Colorado public pension fund, and we have not verified its manager selection process, so check how its investments page invites managers to submit information before you reach out. FundLinx members can see which pensions are rebalancing hedge fund books.

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