UK - HSBC Republic Investments is looking to offer its hedge funds to the DC market, claiming scheme members are tired of traditional managers' poor performance.
The manager believes that as the objective of DC members is to preserve and build capital, schemes should use a diversified fund-of-hedge funds rather than long-only funds as they produce superior returns, have better capital preservation qualities and lower volatility.
HSBC Republic said that the pattern of returns on funds-of-hedge funds were “quite attractive” to DC schemes because their returns tend to be flat when markets fall.
Head of marketing Jamie Murray predicted that hedge funds would be in the DC market within 18 to 24 months.
He said: “Most traditional managers’ take is to follow a benchmark and try to outperform it.
“That means, when markets go down, obviously the members in DC schemes lose money.
“If you look in the DC world, what people are looking for are absolute returns, not this benchmark approach.”
However, Murray acknowledged that aside from any regulatory issues DC schemes could face when attempting to use hedge funds, hedge fund managers attempting to enter the market would face a challenge in changing the perception of hedge funds as a high-risk asset class.
The Pensions and Lifetime Savings Association (PLSA) is in the process of convening an industry-wide group to take forward the work of the Institutional Disclosure Working Group (IDWG).
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