U.S. pension fund CalSTRS invests $100 million with Red Mountain

[April 22, 2015]  By Svea Herbst-Bayliss

BOSTON (Reuters) - The California State Teachers' Retirement System (CalSTRS), the second-largest U.S. public pension fund, made a $100 million investment with hedge fund Red Mountain Capital Partners earlier this year, three sources familiar with the matter said.

The investment raises the Los Angeles-based activist hedge fund's total assets to $500 million, and gives it a credibility boost at a time activism is attracting both fresh capital and new players, industry analysts said.

Red Mountain was founded by former Goldman Sachs partner Willem Mesdag in 2005. The fund makes bets on small U.S.-based companies and works generally quietly with management to boost returns.

The $191 billion CalSTRS has less than one percent of its investments in alternatives like hedge funds, typically favoring activist investors that stay out of the headlines. It has signaled it will continue to place money with hedge funds after its larger neighboring pension fund, the California Public Employees' Retirement System, ditched hedge funds last year.

A Red Mountain spokesman declined to comment.

A CalSTRS official did not immediately comment.

CalSTRS has previously invested with Nelson Peltz' $11 billion Trian Fund Management and Clifton Robbins' $3.7 billion Blue Harbour Group, and both firms say they prefer to work collaboratively with target companies.

One of Red Mountain's recent investments was a bet on fried chicken fast food restaurant Popeyes Louisiana Kitchen, where it owned 1.2 million shares and ranked as the company's second-largest investor after Vanguard Group at the end of 2014.

While Red Mountain tends to hold investments for a substantial period of time, it made a roughly 50 percent gain on Popeyes, prompting it to exit the stock recently, one person familiar with the move said. The firm has returned an average 12.6 percent per year over the last five years.

As its assets have grown, the firm expanded in size, adding Matt Hepler as a partner in the first quarter. Hepler spent the last seven years working at famed activist investor Ralph Whitworth's Relational Investors, where CalSTRS has been a longtime investor.

(Reporting by Svea Herbst-Bayliss; Editing by Richard Valdmanis and Nick Zieminski)

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