Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to a newer version or another browser.

Your browser appears to have cookies disabled. For the best experience of this website, please enable cookies in your browser

We'll assume we have your consent to use cookies, for example so you won't need to log in each time you visit our site.
Learn more

COMMENT - CLEAR THE CREDIBILITY HURDLE BEFORE REJECTING HEDGE FUNDS

  • Comment
This month's PT includes an exclusive survey on council attitudes towards hedge funds. ...
This month's PT includes an exclusive survey on council attitudes towards hedge funds.

Local authorities are sometimes chided for being too conservative in their approach to investment matters. Indeed, no one could accuse councils of embarking on a reckless rush towards hedge funds.

Just one of the survey respondents confirmed its fund would definitely invest in hedge funds in the near future. A fair number were unable to commit one way or another, but 70% ruled out hedge funds altogether.

The degree of antipathy towards hedge funds is a little surprising for a number of reasons.

First, given recent market behaviour, one would have expected more interest in alternatives to straight equity investment.

But, while many treasurers recognise the advantages of a product which can offer returns uncorrelated to other markets, few are tempted to consider hedge funds.

Second, there is a general perception that hedge funds are inherently risky, when in fact it could be argued that the whole premise of hedge fund investing is based on risk control. Those who dismiss hedge funds for risk reasons are more relaxed about the risk associated with, for example, handing over all investment to just one or two balanced managers.

Third, it seems reasonable to suggest that more than one asset/liability study would have produced the conclusion that some degree of exposure to alternative investments should be considered.

After all, as Sir Paul Myners insists, individual pension funds have individual liability characteristics demanding individual benchmarks and asset allocation strategies.

But the survey reveals more than a third of respondents had not carried out an asset/liability modelling study of their fund.

Without such a study, it is difficult to prove that an aversion to hedge funds is based on anything other than gut feeling or the herd instinct.

Doubtless the few brave treasurers who decide to dabble in hedge funds will have their fingers burnt, to cries of 'told you so' from the rest. But it does seem sensible, in the wake of the latest valuation, to at least consider alternative strategies.

  • Comment

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions.

Links may be included in your comments but HTML is not permitted.