FT: Hedge Funds Poor Pension Producers

Tuesday, 02 Aug 2011 12:26 AM

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Investments in top hedge funds have resulted in poor returns for North American pension plans, according to an analysis done for the Financial Times, even though the study upon which the analysis was based found that pension funds are better than the market when it comes to investing in traditional asset classes.

The data come from a study that uses returns reported each year to the CEM Benchmarking database by pension funds representing 30 percent to 40 percent of U.S. pension fund assets, and 80 percent to 90 percent of Canadian pension fund assets.

“We’ve found hedge funds to be a very effective tool when implemented correctly, but it takes resources and it’s not easy,” David Druley, head of the global pension practice at Cambridge Associates, told the Financial Times.

More than two-fifths of pension funds reporting were invested in hedge funds by 2008, against just 2 percent in 2000, yet performance in both the U.S. and Canada was below industry benchmarks.

Between 2000 and 2008, U.S. pension plans received just 1.9 percent a year on average from their investments in hedge funds, after fees; Canadian pension plans made 0.6 percent a year from hedge funds, during a period when Canada’s stock market returned an average 2.9 percent each year.

U.S. pension plan investments in hedge funds beat the S&P 500, which lost investors 3.2 percent each year between 2000 and 2008, but trailed the 5 percent annualized gain of the Hedge Fund Research composite index of hedge fund returns during the same period.

The Street reports that the Dodd-Frank financial reform requires hedge funds to register with the SEC by March 2012 if the fund continues to manage more than $150 million in assets for outside investors. The new requirements would call for funds to report information about the assets they manage, potential conflicts of interest and information on investors and employees.



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