GLOBAL - Pension fund demand for hedge fund indices is minimal and the advent of replicator funds could deal a death blow to them, some of the world's largest consultants have claimed.
But FTSE Group alternatives business unit head Gareth Parker insisted passive indices would play “a very big role” in the hedge fund market going forward.
He claimed some of the consultants’ scepticism was due to “an educational issue”, and also questioned the threat replicator funds could pose to their market share. “How do they know what they are replicating?” he asked.
“Hedge funds – especially the good ones – are very secretive about what they are doing, so a replication fund will only be able to find out what they were doing a month ago when they release a report, but obviously you are then way behind the market.
“Some 20% of the institutional equity money in UK is entirely passively invested. I am convinced that as the hedge fund market matures, there will be a very big role for passive indexes.”
Mercer Investment Consulting principal Robert Howie said demand for hedge fund indices had been low among the firm’s clients and added the firm had generally steered clients away from them.
“Investible indices are touted as passive investments, but the underlying managers don’t discount their fees, and to me that is illogical and contradictory. The whole point of index tracking is that you get it really cheaply, and that is simply not the case with investible indices.”
He added replication strategies would probably be the future of passive investment in hedge funds.
Watson Wyatt senior consultant Chris Mansi agreed.
“The indices also can’t seem to access a better quality collection of hedge funds. They are not the most attractive sort of capital for high quality hedge funds,” he said.
Wilshire Associates VP Paul von Steenburg said although uptake of such indices had been slow, some were “pretty hard to beat” on a risk-adjusted basis.
“Each index provider does it completely differently, so some might not be appropriate at all, but others have better construction methodology.
Mark Evans has been appointed as a director at Independent Trustee Services (ITS) to lead trustee appointments in London.
The Pension Protection Fund (PPF) is consulting on changes to the actuarial assumptions it uses in valuations in a bid to better reflect the bulk annuity market, with schemes set to move into surplus on aggregate.
Private sector defined benefit (DB) schemes were 96.3% funded on a Pension Protection Fund (PPF) compensation basis at the end of July, according to the lifeboat fund's monthly index.
Conduent has completed the sale of its actuarial and human resource consulting business to private equity investor, H.I.G. Capital.