More pension money than ever in hedge funds

New research has found that there is more pension money than ever before in hedge funds, despite it being almost two years since America's largest pension fund pulled its investments from the asset class.

Pension funds have remained loyal to hedge funds following the move by the California Pension Employees’ Retirement System, which at the time rocked the entire asset management sector by removing assets in their entirety from the hedge fund arena.

As it was such a major player, the removal led to a number of other funds following suit, including New York City’s pension fund, which took out its $1.7 billion stake in the hedge fund asset class in April of this year.

These major removals prompted fears that the hedge fund industry could suffer, as pension schemes account for more than $800 billion of the $3.1 trillion in hedge funds across the globe. The industry is already suffering significant outflows of capital, but, despite all this, recent research has shown that there is more retirement money than ever before tied up in the asset class.

Data provider Preqin recently confirmed that there were 1,155 pension schemes worldwide that were investing a total of $839 billion in hedge funds at the end of May of this year.

Just prior to the decision by the California Pension Employees’ Retirement System to remove its capital from hedge funds at the tail end of 2013, there were 1,017 pension schemes with invested capital in hedge funds. The size of the total investments was also 16 per cent lower than that figure recorded this year, at $721 billion.

More retirement funds were also found to be investing capital totalling more than $1 billion for the first time this year, rather than lowering the amount they were investing in the asset class.

One pension fund that plans to raise its investment exposure is Calstrs, which manages $188 billion for teachers in California. The fund has said that it aims to boost its investment in the asset class from one per cent to nine per cent by the year 2020.

Chief investment officer at Calstrs Christopher Ailman told the Financial Times that "misguided expectations" from the pension funds were to blame for the swift retreat from hedge funds.

“A lot of the people who rushed into hedge funds, rushed in in 2004 and 2005. They blended a lot of types and they didn’t like it. A lot of the people getting out now were looking for outsized returns," Mr Ailman added.

In terms of the traditional hedge fund charging structure, Mr Ailman said: “We are negotiating much lower [fee] models than two per cent of assets and 20 per cent of returns. We have very much found [fund managers] open to bespoke agreements because they recognise that we are coming into the industry when others are coming out.”

Along with Calstrs, other major players, including The regents of the University of California scheme and the State of Wisconsin Investment Board, also chose to raise their hedge fund investments by $1.2 billion over the past 12 months.

More than half of private sector pension funds are also boosting their exposure, with some of the most notable examples including the US-based pension fund for food giant Mars, which increased its investment into the hedge fund arena from 14 per cent to 24 per cent. Aircraft maker Boeing also raised its exposure by $2.4 billion, it has been confirmed.

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