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LGC FINANCE - HEDGE FUND FORUM

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Familiarity will breed poor returns, so look for new investments...
Familiarity will breed poor returns, so look for new investments

This column has sought to advocate the role of alternative investments - hedge fund investments, in particular - for pension funds in the local authority sector over the past 18 months.

Everyone involved - practitioner or commentator - appears ready to acknowledge the twin themes of: familiar forms of investment are not sufficient, on their own, to provide the returns required in the future; therefore, going forward, there is a need to secure available sources of excess returns, for instance, alpha.

While the true scale and nature of the pension crisis are subject to debate, we all accept it is a serious problem involving a very large sum of money over a long time.

Aside from a few well-publicised exceptions, councils have been slow to ensure that the substantial rhetoric is matched by actual practice.

No one is pretending this development is easily or quickly resolved, but everyone concurs that it is something that cannot be ignored.

A positive start needs to be encouraged as soon as possible. Independent commentators have suggested using up to 10% of the fund for this - which is entirely manageable and feasible.

Without rehearsing or attempting to summarise the contributions from authors in this column,

I hope we have fairly and objectively set out the main aspects. At least, I have aimed to ensure the series provides readers with a comprehensive view of the prime issues to be considered prior to using hedge funds.

Above all, I hope you have enjoyed the articles and that you are stimulated to investigate the future role of hedge funds in your own fund.

At the same time, do not overlook currency management or global tactical asset allocation opportunities to provide other proven alternative investment opportunities with which to add alpha and thereby supplement returns.

No one is suggesting wholesale changes to fund investment, which would entail the risk of throwing out the baby with the bath water. I am suggesting, however, an examination of the wider opportunities available to help meet the longer-term challenges facing the local government pension scheme, which is overdue.

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