US - Hedge fund managers have downplayed any negative effects the US government's plans to curb bank activities with hedge funds could have on pension fund investors, saying many of those cut adrift from banks could set themselves up independently.
Last month, President Barack Obama also proposed stopping banks investing in or running private equity funds. (Global Pensions; January 22, 2009)
The practitioners added that his final goal, banning proprietary trading, could actually benefit pensions investing in hedge funds.
Analysts Preqin said, funds of hedge funds at 19 major US banks, running about 16% of the US capital in hedge funds, "could be affected" by the plans.
"Restrictions on banks from managing such funds of funds will significantly impact...US public pension funds which have their assets invested in such funds," Preqin said.
However, fund of funds manager Oakley Alternative Investment partner Christopher Parkinson said: "Obama's proposals will not be bad for hedge funds in the long-run, even if in the short-term it is difficult to see how they will play themselves out."
One London-based rival said: "JP Morgan and Goldman Sachs with their inhouse hedge funds could be hit hardest."
JP Morgan owns Highbridge Capital Management, whose US$21bn in assets makes it one of the world's largest. Goldman also runs funds, and uses its Petershill fund to invest in independent managers including Winton Capital Management, Longacre Fund Management and Capula Investment Management.
There are signs banks are already trimming their exposure to alternatives.
Last week, Goldman was reportedly closing its flagship Global Equity Opportunities hedge fund. This morning, Citi was reported to be planning to sell its $10bn private equity unit. Citi did not return calls seeking comment. A spokesman from Goldman confirmed the closure in December of GEO, but added this was "unrelated to [Obama's] proposals".
Oakley's Parkinson said more hedge funds could start up as prop traders are retrenched, and existing funds will benefit as prop desk money leaves markets. "There could be lumps and bumps as capital comes out of markets with desks closing, but the more competitors leave the market, the better it is for hedge funds."
In mid-2009, a salesman at one London convertible bond desk said about 80% of inhouse traders became unemployed during the crisis. Since then, pressure on banks to cut risk meant many have not re-hired.
This was one reason convertible bond hedge funds, the worst hit strategy in the crisis, falling 26% according to data analysts Hedge Fund Research, have since rebounded by 44% since April, when the crunch eased.
Parkinson said: "Fewer prop desks is good news for hedge funds. The traders who lose their jobs if Obama's plans [for trading desks] go through will probably set up on their own, so it will be status quo from a total-market perspective for the [hedge fund] industry."
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).
The Transfers and Re-registration Industry Group (TRIG) has given its support to an initiative which aims to complete occupational pension transfers within three weeks.
Scottish Widows has completed a bulk annuity deal for the Hitachi UK Limited Pension Scheme.