Preqin’s Investor Profiles database tracks 395 public pension funds that are currently investing in hedge funds or that are considering making their first investment in the asset class. Of these 67% are based in North America with 30% in Europe and 3% in Rest of World.
Investment in hedge funds amongst this group has been steadily growing over the past few years. The current mean allocation for public pensions stands at 6.8% with an average target allocation of 7.7%. This shows that many public pension funds still have capital available for fresh allocations. Recent Preqin research has shown that a number of pension funds are considering additional hedge fund investments over the next year and a number of these have recently made new allocations to the asset class. Kentucky Retirement Systems has recently boosted its absolute return portfolio by approving allocations to three funds of hedge funds managers. In addition to this Alaska Retirement Board and Luzerner Pensionskasse are amongst the public pension funds that have all announced plans to increase their hedge fund allocations.
Funds of hedge funds remain popular with pensions making their first investment in the asset class and 62% of all public pensions invest solely through funds of hedge funds. A number of investors will also invest both directly in single managers and through funds of hedge funds; Ohio State Highway Patrol Retirement System recently announced it was searching for both single manager funds and funds of hedge funds. The most popular hedge fund strategies amongst public pensions are long/short equity, macro, CTA and multi-strategy funds. A number of public pensions are also thought to be considering making their first hedge fund investments with Gloucestershire County Council and Oregon Public Employees’ Retirement Fund amongst those actively discussing investing in the asset class with their consultants.
Overall public pension funds remain enthusiastic about the hedge fund asset class and investment amongst this group of investor is expected to continue to grow over the next 12 months.