Funds Hub
Money managers under the microscope
UK universities eye and keep an eye on new hedge fund punts
Pension schemes are moving away from the usual equity/bond/real estate mix to put their eggs in as many baskets as possible. No wonder then that the USS — the 31.6 billion pounds UK universities pension fund — is putting an extra 1.5 percent of its assets, or about 474 million pounds, into hedge funds, as its CIO Roger Gray tells Reuters.
If you are rushing to the phone to pitch business with Mr Gray, however, STOP a minute fund manager: be prepared, the USS is not only eyeing alpha, it is going to ask a few questions about how alpha is distributed and how investors are protected.
“Is the board of the hedge fund constituted in a way which gives us assurance that they are actually acting in the interest of the limited partners rather than in the pocket of the managers?” he said.
Key words for this pitch: governance, transparency, best and practice.
Key advice for this pitch: forewarned is forearmed. (The USS does not seem to need the usual ’caveat emptor’ advice).
Go forth, brave hedgie!
Morning Line-Up: ‘Cruz missile’, Marshall Wace, USS
News and views on the asset management industry from Reuters and elsewhere:
‘Cruz Missile’ takes off with new fund – WSJ
Marshall Wace investors poised to wind up listed fund – FT
Cautious on equity hedge funds – WSJ
USS pension fund expands its internal investment team – Financial News
80 pct of FoHF managers considering Ucits wrapper, says KDK – Hedgeweek
JPMorgan launches Ucits fund of absolute return hedge funds – Hedgeweek
Morning line-up: USS, Gambhir and the US take on regulation
News and views on the fund industry from Reuters and elsewhere:
USS prepares for tough call – Reuters
Gambhir likes UK, Germany – CityWire
Wall Street still in the hedge fund game – Reuters
Market reprieve robbed clients of change – Reuters
NAPF takes aim at EU AIFM draft
The hedge fund industry’s anger at the EU’s Alternative Investment Fund Managers directive is hardly new now, but there are growing signs of discontent from another group — the pension funds that actually put their money into hedge funds.
Last week we reported USS (the Universitied Superannuation Scheme) and Hermes, which manages BT’s pension scheme, were criticizing the draft laws for potentially limiting their investment choice and upsetting portfolio balance.
Now the NAPF (the National Association of Pension Funds) has written to Charlie McCreevy, European Commissioner for Internal Market and Services, saying the directive could reduce choice and increase costs, while expressing concern about the model of regulation being proposed.
The hedge fund industry has quickly mobilised itself to criticize the directive and lobby for extensive revision, but, as it found earlier this month when Poul Nyrup Rasmussen, president of the EU assembly’s socialist bloc, spoke at a debate in the City, many supporters of the directive are already fully aware of hedge funds’ opposition to the plans.
While some sort of directive and tougher regulation looks inevitable, the hedge fund industry must be hoping that EU lawmakers will heed more closely the voices of pension funds representing savers across Europe when they decide what rules hedge fund firms will have to play by.
Staying Power
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.
USS’s enterprise
The 23 billion-pound Universities Superannuation Scheme (USS) is boldly going where few investors are prepared to go at the moment and upping its allocation to hedge funds.
Despite last year’s record poor performance from the hedge fund industry, Britain’s second-biggest pension fund is sticking with a mission to double its allocations to hedge funds and private equity to 20 percent.
Pension funds were faced with a major problem after 2008 – do you buy or sell hedge funds?
If your equities are down 40 percent and your hedge funds down 20 percent, do you invest more in hedge funds because they performed better?
Or do you pull money out because they didn’t make money and because they’re now actually a bigger part of your portfolio than you’d originally bargained for, so you have to rebalance?
USS’s move backs up what some hedge fund firms have been telling me recently - that some institutions are very gradually putting money in.
Plenty of investors are pulling money out as fast as they can, either because their hedge fund investments disappointed their expectations of positive returns in all markets, or simply because some hedge funds offer a quicker means of accessing cash than some of their other investments.
