We use cookies to support features like login and allow trusted media partners to analyse aggregated site usage.
To dismiss this message and allow cookies to be used, please click "Continue".

Continue

Features

Twitter board

Follow us
  • To read LGIM's take on alternative credit click here: https://t.co/UeMKBQuKmd https://t.co/HqpKasST687 days ago
  • Climate change, #MeToo, plastics: ESG in 2019 might sound like a repeat of last year but that is where the similari… https://t.co/JfbVlSHXvs8 days ago
  • Have you seen our latest property roundtable? Click here to read more: https://t.co/Brd4QkMsNk https://t.co/EleMsa1HZz35 days ago
  • Has the direct lending market become a victim of its own success? Read more here: https://t.co/55jXOQqnCr… https://t.co/3rDYQhcbgX38 days ago
  • Have you seen our latest roundtable? An investor sits down with fund managers and advisers to discuss real estate's… https://t.co/DZqJFjnCxP43 days ago
  • Decision-makers at key pension schemes share their views with Mona Dohle on how to pick the right manager and wheth… https://t.co/ZGCHhJMJCu45 days ago
  • Read our latest interview with Mark Mansley, chief investment officer of Brunel Pensions Partnership here:… https://t.co/0fKgRopmsW52 days ago
  • "ESG is a hot topic among investors, but it appears that trustees are yet to catch on. Mark Dunne takes a look at t… https://t.co/pKGoquOCMk58 days ago
  • "@BNPPAM_COM is launching a sustainable SME funding strategy to boost the economy and help investors escape the low… https://t.co/clDIoHPo6P64 days ago
  • "Pension funds, as long-term investors, could find themselves exposed under many of the potential future scenarios… https://t.co/d37su2PwsD65 days ago
  • As LDI strategies are gradually being replaced by CDI approaches, how are pension schemes managing the additional r… https://t.co/rlMnrBmr1d66 days ago
  • Emerging market debt is rapidly becoming a local currency market, but investors are still nervous about a US rate r… https://t.co/3coGF5Dq8n77 days ago
  • Have you seen our latest roundtable? We brought fund managers, consultants and trustees together to discuss emergin… https://t.co/BMLta4c9pm80 days ago
  • Does the turbulence hitting stock markets at a time of rising bond prices mean it is time to ditch multi-asset fund… https://t.co/GiSdFpE01N86 days ago
  • More and more pension schemes are increasing their allocations to private equity, but will the illiquid strategy br… https://t.co/8l8TI75r9v92 days ago
  • Border to Coast Pensions Partnership CEO Rachel Elwell tells Mona Dohle about the challenge of developing a common… https://t.co/nQZfFveQdz93 days ago
  • Out now- The portfolio institutional October issue featuring our cover on ESG and fixed income: Breaking new ground… https://t.co/hnmwYclXS594 days ago
  • Friday View: ESG in fixed income: The new frontier - LGPS bolster infrastructure collaboration - EM Roundtable: The… https://t.co/zxvEKaZkoM97 days ago
  • Local government pension scheme (LGPS) pool Border to Coast has appointed the first external managers for its £1.2b… https://t.co/eBAbx0ubzJ97 days ago
  • "Investors seduced by the impressive growth forecasts for emerging market economies should prepare themselves for a… https://t.co/7nAnrL8s7t98 days ago

Alternatives

The future of hedge funds

The future of hedge funds

By Pádraig Floyd
Tuesday 9th December 2014

CalPERS' decision to kill off its $4bn hedge fund allocation earlier this year highlighted some of the problems present in the asset class, but smaller institutions are unlikely to follow suit, Pádraig Floyd writes.

“Consultants are very much part of the problem. It’s crazy that once a manager has passed due diligence the assets can grow at a speed we have never seen before.”

Nicolas Campiche

The decision of the California Public Employee Retirement System (CalPERS, to jettison its $4bn hedge fund allocation in September has sent ripples throughout the investment world.

Though many of the headlines focused on the $135m the pensions giant paid for 7.1% returns in the previous year, it is far too simple to blame the withdrawal on performance.

After all, the fund is in a state of flux as it adjusts not only to the ever changing markets, but the upheaval following the loss of its CIO earlier this year.

SEASON OF THE SWITCH

Change is often associated with a new leader – a new broom sweeps clean, after all – but even this is too simple a justification for dumping the approach.

Complexity has also been cited and scale must be considered. A fund the size of CalPERS should be able to do anything it wants in the investment markets. But its very size – almost $300bn, a sum larger than the 2013 GDP of periphery EU nations including Greece, Portugal and Ireland – is also a hindrance.

To get a meaningful allocation the fund would need to allocate anything up to 10%, which at around $30bn is a huge sum to find a home for. As Aurum CEO Kevin Gundle points out: “CalPERS only had a 2% allocation to hedge funds within their portfolio, meaning even a stellar performance would not have really affected the overall picture – the juice simply wasn’t worth the squeeze.”

Stephane Enguehard, head of development funds of hedge funds at Lyxor, is also unfazed. “We don’t decipher the CalPERS move as a trend and there is evidence that North American funds are increasing allocation to hedge funds. Last year 254 public pensions had allocations and this year that figure is 269.”

This growth in allocation reinforces the suggestion CalPERS hasn’t lost faith in hedge funds, but simply couldn’t get enough exposure to “move the needle” and so has bailed out.

“You have to look at the 30-year rally in long-term interest rates. They are low and will stay low and the traditional sources of return are offering less potential to perform,” says Enguehard.

“Equity markets are almost fully valued and hedge funds offer appealing proposition.”

SEARCH FOR A STAR

That desire for alternative exposure is what led many investors to look to hedge funds, says Lisa Fridman, head of research, PAAMCO.

“We see some investors using hedge funds as a replacement for part of their equity exposure. They would like to maintain some equity risk while reducing volatility and directionality of the allocation and therefore may pursue a long/short equity strategy.”

Investors, particularly in the US, are generally worried about how interest rate hikes may affect the fixed income part of their portfolio. Some allocators have shifted part of their fixed income allocations into hedge fund portfolios with a goal to achieve a similar performance profile while limiting duration.

Page: 1 2 3
0

Leave your comment

View our comments policy

Please login or register with us to leave a comment. It's completely free!

Friday View

Friday View

Shareholder engagement: