Hedge Fund Woes Worry Pension Plan Managers

Kurt Brouwer August 27th, 2007

U.S. retirement assets total about $16.4 trillion these days (see here for more) and, until recently, large corporate and public pension plans were eager to put more assets in hedge funds. Due to recent failures of several prominent hedge funds, pension plans are rethinking that decision as this article by Craig Karmin at the Wall Street Journal spells out [emphasis added]:

‘Many public pension funds in recent years have become eager to invest in hedge funds. Now, some are getting cold feet.

Pension-fund managers from Louisiana to Ohio are saying they may slow their push into these funds after the recent losses suffered at big hedge funds — including ones run by Goldman Sachs Group Inc. and AQR Capital Management — have reinforced some of the risks…

Large pension plans have moved assets into hedge funds and private equity funds over the past few years. I don’t expect that move to stop completely because alternative investments such as private equity and hedge funds can add value if they are carefully selected and well-diversified. However, this movement became somewhat fad-like and so I’m happy to see a little more caution coming in. Several hedge funds have had serious problems this year (see here) and that has had an impact on how they are viewed by the generally conservative types who manage pension plans. Karmin continues:

…Dan Gallagher, chief investment officer at the Los Angeles City Employees’ Retirement System, suggests the hedge-fund losses have only made him more skeptical. “I’m not a major hedge-fund proponent,” he says. “And the perception among some of our trustees is that hedge funds are very volatile and that there is risk there.”‘

I predict that these large institutional investors will look more to mutual funds that take an alternative equity approach. The benefits of this are that mutual funds have a much more transparent structure, they generally do not use borrowing or leverage and they have a much lower cost structure.

Hat tip: MarketBeat Blog

Did you enjoy this article?

One Response to “Hedge Fund Woes Worry Pension Plan Managers”

  1. # Blogging About ERISA - Carnival #12on 02 Sep 2007 at 1:07 pm

    […] Kurt Brouwer of the Fundmastery Blog discusses hedge fund collapses worry plan managers in Hedge Fund Woes Worry Pension Plan Managers. […]

Trackback URI | Comments RSS

Leave a Reply