UK - Schemes are being urged to bypass enhanced equity strategies and use hedge funds on their index portfolios to generate positive returns instead.
The advice comes from NAPF investment council chairman – and consultant to Frank Russell Company – Ken Ayers.
He explained: “If you invest the fund in an index-tracking portfolio, what you have got by definition is market performance. But if you superimpose a market-neutral long-short strategy on to that, you have got the active bit on top of the core bit.
“The hedge fund manager running that part only needs to have strong views on part of the index. You would employ two different managers, one to do the tracker, the other to add value on top of that. They will use the stock in the underlying portfolio.”
Io Investors client solutions director John Conroy agreed and said this would be a good way for schemes to gain “initial exposure” to hedge funds. He described using a long-only index fund with a long/short strategy to generate return as “next generation thinking”.
“Schemes have got to learn about these things. There is significant knowledge to be gained on what these things do, so it’s only fair people should move slowly in that way.”
Permal Investment Management senior executive Omar Kodmani added: “Traditional active management does not add value, so long/short is a great way of getting equity exposure with protection in index portfolios.”
But not all fund managers agreed with using an enhanced index hedge fund strategy.
State Street Global Advisors senior investment manager Simon Roe said: “This would certainly bring you up to speed with the way hedge funds work, but you don’t get the key benefits of hedge funds because it is all done around an index.
“So although you get to learn about hedge funds, you’re still exposed to the ups and downs of the market.”
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.