Land of Enchantment apparently disenchanted with hedge funds
| Feb 21st, 2008 | Filed under: Hedge Fund Industry Trends, Hedge Fund Regulation | By: Alpha Male |
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Institutional investors seem have developed a love/hate relationship with hedge funds according to a report published by SEI last week. Says the firm…
“..the SEI analysis details growing institutional acceptance of hedge fund investing. Forty-seven percent of the institutions surveyed said they already invest in hedge funds. Within that group, 73% of pension plans and 55% of institutions overall said they had increased hedge fund allocations over the last several years. Portfolio allocations to hedge funds averaged 30% for endowments, 13% for pension funds, and 24% for institutions.”
However, the firm also says that institutions remain nervous about their hedge fund investments:
“At the same time, institutions expressed continued concerns with hedge fund investing. “Headline risk” was named by 37% of survey respondents as their biggest worry, followed by lack of transparency (19%) and poor performance (15%). Institutions also remain cautious in selecting hedge funds, the survey found, devoting an average of seven months to due diligence and 12 additional weeks to approval.”
Politicians are – quite rightly – sensitive to “headline risk”. One such politician is New Mexico’s Teresa Zanetti. She tabled a bill in the state legislature at the end of January that would ban hedge fund investment by the $15 billion New Mexico State Investment Council (although, according to Pensions & Investments, it would have allowed the State pension plans to continue investing in hedge funds).
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There was a great article about a year and a half ago (can’t find a non-locked version) about what the CIO had been doing in New Mexico.
[...] The political risk in idiosyncratic investment risk. (All About Alpha) [...]
[...] However, as Barron’s reports, critics echo some of the concerns expressed by their neighbors in New Mexico (see related posting): “Not everyone is enamored of Harris’ approach. Frederick “Shad” Rowe, chairman of the Texas Pension Review Board in Austin, agreed to speak with Barron’s as a private citizen. He worries about the potential for big losses: ‘There seems to be a misunderstanding over risk, which they equate with volatility, and the absolute and permanent loss of capital…I don’t think this approach is appropriate for all big public pension plans. They’re certainly sophisticated, but it’s not something I’d like to see everybody doing.’” [...]