UK’s £1tn corporate pensions sector stands by hedge funds
The embattled hedge fund industry was given a boost by the UK’s £1tn corporate pension fund sector that indicated it would not make a hasty exit from the asset class, as the investments fell out of favour in the US.
The National Association of Pension Funds, which represents 1,300 workplace pension schemes, with 15m members, said hedge funds “had a role to play” in providing returns for members, as influential funds in the UK and US branded the investments as “costly and complex”.
The hedge fund industry came under pressure this week after Calpers, the largest public sector pension fund in the US, said it was exiting its $4bn holding, on concerns the investments were too complicated and expensive.
In reaction, the £4.5bn London Pensions Fund Authority – the UK’s most influential public sector pension fund – said it understood Calpers’ decision and branded high hedge fund fees as “unjustifiable”.
Although the NAPF said there had been a gradual move away from hedge funds by its members towards diversified growth funds and infrastructure, it stressed that events in the US would not likely trigger any immediate rethink on asset allocations by its members.
“Pension funds have been looking at more riskier assets because bonds yields are so low,” said Helen Roberts, lead on policy investment with the trade body.
“Our members need to have a choice of strategies and assets. Hedge funds can suit some pension schemes but it depends on the specific pension fund,” the NAPF added.
Appetite for hedge funds among the UK corporate pension fund sector has grown in recent years. According to the Pension Protection Fund, corporate pension fund exposure to the investments has grown from 4.5 per cent in 2012 to 5.2 per cent of total assets, of £1.1trn, in 2013.
However, some investment advisers said many hedge funds would struggle to retain clients at the current fee levels unless they could demonstrate superior investment skills or access to assets and performance that is not available elsewhere.
“There is now a huge disconnect between the fees on hedge funds and the fees for mainstream long-only management and even fees on absolute return funds, which can protect against downside risk, have been falling,” said Dr Ros Altmann, an independent pensions expert.