UK - The number of schemes investing in hedge funds is expected to double this year as trustees seek to bolster returns and reduce risk.
Senior consultants say the percentage of schemes with exposure to the alternative investment class will grow from 5% to 10% in the next 12 months – particularly to funds-of-hedge funds.
The take-up will be greater at larger funds with almost a quarter of the top 200 schemes expected to plunge millions of pounds into the asset class.
The J Sainsbury Pension Scheme, Railways Pension Scheme, Stagecoach Holdings Group Pension Scheme and the Flintshire County
Council Pension Fund are all believed to have moved into hedge funds in recent months.
Mercer Human Resource Consulting head of investment strategy Andrew Green said the falls in the equity markets in 2001 and 2002 made them an attractive portfolio diversifier.
“Pension funds still need to generate returns but at the same time want to diversify risk away from the concentration of equities, and in an environment where returns are lower in absolute terms, hedge funds provide an obvious part.”
He added: “Since the significant fall in equity markets, trustees have been educating themselves about alternative investments. Now they are at the stage where they are implementing that knowledge, so we are just beginning to see the acceleration of hedge funds.”
Railpen Investments managing director Chris Hitchen said in a report for PricewaterhouseCoopers: “Hedge funds are on pension funds’ radar screens. Even those who eschew the investment will find their return opportunities increasingly influenced by hedge fund activities.
Gartmore Investment Management this month launched a currency hedge fund aimed at institutional clients. It now has 12 single manager hedge funds in its AlphaGen range with four of these funds having been launched in the last 13 months.
Most respondents in this week's Pensions Buzz do not think businesses should be able suspend AE contributions if in financial distress.
Former BHS owner Dominic Chappell has lost the appeal against his section 72 conviction and sentence for failing to hand over information to The Pensions Regulator (TPR).
This week's top stories include Marsh and McLennan Companies agreeing to buy JLT, and the home secretary calling for AE to be scrapped in a no-deal Brexit scenario.
Lesley Titcomb says the watchdog wants closer interactions with pension funds to spot problems sooner and act before having to use its more stringent powers