ST. THOMAS - The V.I. Government Employees Retirement System board of trustees on Thursday selected seven companies to manage a host of alternative investments in real estate, private equity and hedge funds.

The board selected UBS Global Asset Management, Blackrock, ING, Mesirow Financial, Entrust Capital, Aetos Capital and The Rock Creek Group.

The selections are part of GERS's efforts to get a team of alternative investors in place before the V.I. government issues up to $600 million in pension obligation bonds, which is expected to happen this summer.

The bonds are a major part of the government's plan to address the system's $1 billion unfunded liability. The unfunded liability is caused by a chronic disparity between contributions and disbursements.

The influx of bond proceeds would bolster GERS's current $1.3 billion investment portfolio that is made up of stocks and bonds.

Under V.I. law, the system can choose to invest up to 5 percent of its overall portfolio in alternative investments such as real estate and hedge funds.

The selected investment firms will target different areas.

UBS Global Asset Management will focus on core real estate investing, which focuses on generating moderate returns while carrying less risk.

Blackrock and ING will invest in value-add real estate, which is more aggressive, aiming to generate higher returns with higher risk.

Blackrock and Mesirow will concentrate on private equity, which is acquisition of private businesses.

Entrust, Aetos and Rock Creek are hedge funds, which are private partnerships that can invest over a wide range of markets with greater flexibility, but they carry higher risk.

The chronic disparity between what the system collects and its distributions continues and GERS officials reported Thursday that the system had a $45.2 million deficit in its operating cash flow during the first six months of its Fiscal Year 2008.

Collections between Oct. 1 and April 30 were more than $83.1 million, yet the system paid out more than $128.4 million during the same period, according to GERS cash flow statements released at Thursday's board meeting.

GERS collections, or cash revenues, include loan repayments, rent, West Indian Co. dividends, parking lot receipts, commission recaptures and retirement contributions from employers and employees.

The system's disbursements include administrative expenses, annuity payments, loans and other operational costs.

During Fiscal Year 2007, the system had reported a nearly $65 million shortfall in operating cash flow.

To make up the difference, GERS uses some of its earnings generated from its investment portfolio.

- Contact Tim Fields at 774-8772 ext. 364 or e-mail tfields@dailynews.vi.