UK - Consultants PricewaterhouseCoopers (PwC) has issued a scathing attack on the recent investor "binge" on hedge funds, stating that the only way pension fund trustees can benefit from them is as "spectators".
The periodical pensions report issued by the firm’s actuarial and benefits arm goes on to state that the latest hedge fund boom will “inevitably” spiral downward and has “some of the hallmarks of a classic bubble”:
“Last year investors piled into private equity; this year they are bingeing on hedge funds. Inevitably, returns are chased downwards. Followers of herds never make money.”
PwC’s remarks come nearly three years after the spectacular demise of US hedge fund firm Long-Term Capital Management:
“The time between bubbles seems to be how long it takes to forget the last one, plus one day”, said the report.
But although PwC acknowledges that hedge funds bring liquidity to the market and aid portfolio risk management, the firm stresses that pension funds should tread with caution:
“For pension funds the case can be made for those types of hedge fund correlated with the lowest risk investment for a trustee (long bonds) and equities (the usual diversifier chosen by trustees).
“But it is not clear if these low correlations are maintained when they are most needed - in market declines.”
By Madhu Kalia
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