By Susan Barreto
trend to go viral can be found in the Occupy Wall Street
movement that has grown to become Occupy St Paul's in London
and even Occupy Chicago in front of the Federal Reserve Bank of
JRR Tolkien summed it up well: "The wide world is all about
you; you can fence yourselves in, but you cannot forever fence
it out." So as protestors camp out in unlikely places in city
centres, their voices seem united in providing more of a sense
of economic certainty than Wall Street executives seem to have
Caught in the middle, institutional investors of varying
sizes seem to agree - perhaps to the chagrin of protesters -
that hedge funds are as useful a tool as ever to skirt around
the thorny issues troubling global equity markets.
Looking at the hedge fund industry globally, HedgeFund
Intelligence has seen asset growth of 4% in Europe in the first
six months of this year and a contraction of 5% for the same
time period in Asia. Meanwhile, the US hedge fund market saw 8%
asset growth up until 30 June.
Performance of hedge funds globally seems to be flat to
slightly negative in some instances, which may sound
disappointing, but investors know the S&P 500 this year is
down roughly 1.4% for the year to date.
In specific global markets, we can see where domestic hedge
funds may seem attractive even if they are plain-vanilla
long/short equity. For example, Japanese investors considering
their hedge fund options now have local managers to choose from
(see page 22). In Australia, hedge funds are also an important
diversifier for the Sunsuper fund, which has a 25% allocation,
including a 7% allocation to hedge funds (see page 12).
The most active group in hedge funds in the past two to
three years has been the retirement plans. Globally the largest
pension funds have assets totalling $13 trillion. Hit hard by
domestic equity markets, pensions are now reworking portfolios
in a variety of ways.
In the US, most of the hedge fund interest has been in the
public pension fund community. This is despite a credit crunch,
the largest securities fraud case in history (Madoff, in case
anyone has forgotten) and a lack of funding by the state
legislatures. This month, InvestHedge has tracked $1.7 billion
in new hedge fund mandates and add-on commitments in the
The focus going forward will be to place hedge funds outside
the equity or absolute return buckets to other parts of the
port¬folio, very much akin to what has been happening at
funds such as San Bernardino County (see page 11).
Large European pensions have also gone direct with the help
of managed account platforms and consultants. A recent example
of this can be found at PGGM, the Dutch pension fund with $142
billion in assets and a goal of allocating to between 30 and 40
hedge fund managers by year-end.
Then there are other investor types such as US endowments
and foundations that are also looking at the same hedge funds
to provide them with risk-adjusted returns over the next few
years. Family offices are also remaining active globally with
their own role to play in the hedge fund industry after seeding
a number of today's successful hedge fund firms.
And one must not forget the powerful Asian and Middle
Eastern sovereign wealth funds that are also looking to carve
out hedge fund stakes. As Russ Read, formerly of CalPERS, joins
the Gulf Investment Corporation, it remains to be seen how
hedge fund strategies will fare under his direction (see page
The question remains, though: are these global investors
united in the same cause? Just as protestors in Athens, Rome,
London, New York and Chicago seem to be saying something
similar, are they really asking
for the same issues to be dealt with? While global investors
are protesting beta, they have yet to be unified on hedge fund
structures, fees and liquidity needs. This is where the
boundaries should be drawn clearly for the benefit of all.