Money managers under the microscope
Hot on the heels of USS – the UK’s second largest pension scheme — deciding to go ahead with plans to increase its investments in hedge funds comes news that another large local authority fund had started investing in the freewheeling asset class.
The CIO of the West Midlands Local Authority Pension Fund told us: “My belief in the benefits of diversification has strengthened and I think now is actually a good time to invest in hedge funds as they have been forced to improve their practices and some of the weaker ones have gone.”
Hedge funds have had their worst year on record in 2008 and although most hedge funds failed to deliver positive absolute returns during the year, the S&P Global 1200 fell 40.1 percent in 2008 whilst the average fund of hedge fund only lost 18 percent.
Many market commentators were expecting a backlash against hedge fund strategies from pension funds investors in a move back to more traditional asset classes. But the recent moves indicate that pension funds as long term investors are unlikely to take knee-jerk decisions.
However, investment consultants believe that going forward pension funds are likely to be much more cautious. Mercer’s Nick Sykes said that hedge funds will have to take a more focused approach in the future and only the ones that add demonstrable skill will be able to demand high fees, with investors refusing to fork out for hedge funds investments that only provide market exposure.