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London Public Pension Funds Slow to Move into the Hedge Fund Space – May 2014

by David Corrigan

  • 09 May 2014
  • HF

In a blog in March 2013, Preqin reported that London-based public pension funds held mixed attitudes towards hedge funds. Over the course of 2013 and into 2014, London borough pension fund activity within hedge funds has remained largely muted. Similar to last year’s study, only nine of the 32 London-based public pension funds currently have an allocation to hedge funds. At this time, only one London public pension fund is known to be actively considering a move into hedge funds in 2014.

On the whole, UK public pension funds are less likely to include hedge funds than their counterparts in the rest of Europe and the US. According to Preqin’s Hedge Fund Investor Profiles online service, only 35% of UK public pension funds invest in hedge funds, compared with 40% and 63% of public pension funds in the rest of Europe and the US respectively. The most recent London borough pension to enter the hedge fund asset class was London Borough of Waltham Forest Pension Fund; the pension fund completed its maiden hedge fund hires in 2013, with allocations to BlueCrest Capital and Markam Rae.

On average, London pension funds investing in hedge funds have only been doing so for four years, and these investors hold an average of two investments. In addition, new investors tend to invest through funds of hedge funds, which is the case with London public pension funds. Seven of the nine pension funds who invest in hedge funds do so solely through funds of hedge funds. Multi-manager funds benefit investors who do not have the resources to actively manage a portfolio and these funds offer an effective way to diversify exposure. It does, however, explain the continued low level of search activity from London pension funds. In contrast, the most experienced hedge fund investor in the group, London Borough of Enfield Pension Fund, which has been investing since 2007, invests directly in hedge funds through three single manager funds. This fund also has the highest hedge fund allocation of all London borough pension funds, allocating 20% of its total assets to the asset class.

London-based public pension funds investing in hedge funds on average allocate 8.9% of their total assets to the asset class and the majority are fully allocated. It looks like 2014 may be another year with little activity by London borough pension schemes in the hedge fund space. With some direct investors emerging, however, it may be a group of investors worth keeping an eye on over the long term as they grow more comfortable with including hedge funds in their portfolios.

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