21/07/2010 Author: Shannon Hawthorne

UK institutions still wary of hedge fund investment

UK pension funds remain wary of investing into hedge funds, despite a marked increase in institutional allocations to the space, an ongoing HFMWeek survey has revealed.

In a poll of 60 public and private UK pension funds, only 11% of schemes not currently investing in hedge funds described their trustees’ attitudes towards the sector as ‘positive’, with the majority classifying their stance as either ‘negative’ (37%) or as ‘wary / uncertain’ (25.9%).

The perceived risky nature of hedge funds and potential for big losses was one of the main reasons given for lack of trustee appetite for investment in the space, while concerns about a lack of liquidity in the sector was another.

However, in contrast, the HFMWeek survey, part of an ongoing project monitoring the investment levels and sentiments of UK and European pension funds towards the hedge fund industry, also revealed that trustees of pension plans that are already investing in hedge funds are largely upbeat about the space.

Of the current investors, 48.5% described their trustees as ‘positive’ about the sector, while 18.2% classed them as ‘comfortable’ with their fund’s current allocation.

Nevertheless, continued uncertainty over the final outcome of the Alternative Investment Fund Manager (AIFM) Directive has led to growing concerns by some pension funds with hedge fund allocations that it will lead to increased compliance costs, which are likely to be passed onto investors.

Last month, HFMWeek reported that the $3.44bn Avon Pension Fund is planning to assess the potential impact of the Directive in a major review of its hedge fund portfolio.

“We are due to review our FoHF investments and so naturally we wanted to incorporate any regulatory change into that review,” said Matt Betts, assistant investments manager.