Contributing Editor Hamlin Lovell Writers Jasper Jolly, Simon Kerr
Contributors Chris Brodie, Krom River Trading AG; David Heffron, Addleshaw Goddard; Tillmann Sachs, J8 Capital Management LLP, and Hui Yu Chen and Robert L.K. Tiong, Nanyang Technological University, Singapore; Peter Astleford and Mikhaelle Schiappacasse, Dechert LLP; Liam O’Brien and C. Mark Laskay, McCormick & O’Brien LLP, with Lauren Parra and John S. Keating; Paul Duprey; Jonathan Master, Andrew Henderson and Stefanie Sahla-Jones, Eversheds; Brian T. Daly, Marc E. Elovitz, Brad L. Caswell and Jacob Preiserowicz, Schulte Roth & Zabel; Donald A. Steinbrugge, Agecroft Partners; Bill Ehrman, Paix et Prosperité Funds.
Publisher Rod Sparks Sales & Marketing Agata Sznerch Photography Andy Paradise
Printing Stephens & George
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Editor’s Letter SEPTEMBER 2014
fund/hedge fund consultant RFP/RFI” shows dozens of US pension funds, including CalPERS’s California siblings, are hungry for hedge funds. The second largest US public pension plan, CalSTRS, has even seeded activist fund Legion where manager, Ted White, is ex-CalPERS! Elsewhere in California, Orange County once attained textbook notoriety for Treasurer Robert Citron’s mishaps with interest rate swaps; now the county is seeking external expertise in the form of an uncorrelated macro manager. Fortune already reports other US state pension plans eyeing CalPERS’s hedge fund book!
T
hat the largest US pension plan, CalPERS, will fi nally divest its remaining, relatively small, 1.3% hedge fund allocation, does not indicate a broader trend of pension funds exiting hedge funds. A quick google for “pension fund hedge
INFORMING THE HEDGE FUND COMMUNITY ISSUE 97 SEPTEMBER 2014
Buzzacott LLP Carving out a niche
Alternative Investments Demystified MYTH: Alternatives are risky
Solar: The Third Industrial Revolution Commodity markets cannot ignore new technologies
illiquid credit opportunities Embracing European Chenavari
Here in Europe, the largest pension fund, APG, reaffi rmed its commitment to hedge funds last month when new CIO, Eduard van Gelderen, spoke to aiCIO. At 2013 year end APG had a “strategic” (i.e., structural or steady as opposed to tactical or temporary) 5% of its €288 billion assets in hedge funds – in percentage terms, roughly quadruple the CalPERS proportion. Yet APG’s 5% is slightly below the average weighting for pension funds that allocate to hedge funds, according to consultants Mercer. Their Asset Allocation Survey – European Institutional Marketplace Overview 2014 canvassed 1,200 pension plans in 14 countries, with €850 million of assets. Some 17% of the plans allocate an average 6% of their assets to hedge funds. Mercer clients have €35 billion in hedge funds, and Robert Howie tells THFJ Mercer observes “a gradual increase in allocations to hedge funds and alternatives in general – and does not expect a retraction.” Howie’s pension fund clients continue to be attracted by “long-term net of fee returns on a par with equities, only with lower volatility.” He also argues “the opportunity set is good as markets are starting to reward security selection and deleveraging also creates opportunities.” Mercer is seeing growing interest in its delegated solutions and implemented consulting whereby clients are leaving the hedge fund allocation and/or selection decisions to Mercer.
This is echoed by Cardano’s chief investment offi cer, Keith Guthrie, who told THFJ their clients often entrust the hedge fund bucket to Cardano as part of the overall package that makes up their fi duciary management model. Guthrie empathizes with CalPERS’s concerns over fees, but Cardano is engaging in open dialogue with hedge funds about “different ways to structure fees and align interests.” Cardano continues to use hedge funds in client portfolios as “some but not all have useful diversifying characteristics.” This view is underscored by consultant Towers Watson’s 2014 Global Alternatives Survey, which states “investors continue to view the hedge fund portfolio as a decorrelating and diversifying allocation.”
Hamlin Lovell Contributing Editor
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