Pension Fund Investment

Pension Fund Investment Trend

I just found this interesting new article about how pension funds are starting to follow the lead of endowments in increasing the diversity of their investments, and doing so in part by allocating more of their portfolios to hedge fund managers and alternative investments in general. The average endowment currently allocates 12.9% of their portfolio to hedge funds while the average public fund allocations just 1.1% and corporate plan 1.6% according to this latest report.

"Our research reveals that diversification remains the dominant trend in institutional portfolios," said Greenwich consultant and report co-author William Weschler, in a statement. "And in general this shift is taking two forms: the shift of assets into alternative investments and allocation adjustments that reduce the level of �home-bias and change portfolio composition to better reflect global market capitalization."

However, plan sponsors new to hedge fund allocation face capacity constraints, particularly from the fraction of hedge fund managers that consistently produce superior fee-adjusted returns. In addition, more than one-quarter of plan sponsors cited lack of transparency as a barrier to Hedge Fund Investment, up from 23% the year before. And almost 20% said hedge funds' 2% management and 20% incentive fee structure hinders increased investment.

"It will be interesting to watch what happens to the 2-and-20 fee structure as traditional asset management shops expand their offerings of hedge fund'-like products and hedge funds expand their long-only-type products in their effort to appeal to institutions," Mr. Weschler said.

- Richard

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