UK - Two fund managers are boosting their hedge fund offerings despite warnings that the concept has failed to make an impact on the conservative pensions market.
State Street Global Advisors claims pension funds have been loath to use hedge funds due to a fear of risk.
SSgA UK chief investment officer Chris Woods said: “Fund-of-funds recognise that there are risks out there and then sift out the risk. Equities are also very risky too. But hedge funds are very risk controlled.”
Woods suggested that pension funds would best gain exposure to hedge funds through a fund-of-funds approach, but he acknowledged that pension funds have been slow to invest in hedge funds due to a fear of risk.
He added: “UK pension funds are extremely conservative. It will take a long time for them to get comfortable with derivatives.”
But he argued that with more pension funds switching assets into corporate bonds, fund-of-funds offered a chance to add extra risk and therefore a possibility of returns while also offering asset diversity.
He said: “People are becoming disenchanted with equities. They protected pension funds from the ravages of inflation. But conditions have now changed.”
Woods’s comments come in the wake of a fund-of-fund launch by HSBC Republic Investments and a new hedge fund from Barclays Global Investors.
HSBC Republic Investments' fund-of-funds is designed to appeal to pension funds seeking to test the water and offers low management fees and a low minimum entry – $2.5m.
The portfolio of 25 hedge fund holdings will comprise a range of styles and strategies to achieve diversity.
BGI has added another hedge fund to its fund-of-funds product with a higher risk/return version of its existent market neutral strategy.
The new fund aims to return 10% per year after fees and be independent of UK or global equity market returns.
Portfolio manager for the fund Jonathan Lamb said: “The fund’s structure means it is relatively simple for us to gear the strategy up to provide an investment that is a very good fit for a portfolio of funds.”
By Alistair Graham
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