New 130/30 and “hedge fund replication” mandates bridge gap between alts and skeptical pensions
| May 20th, 2008 | Filed under: 130/30, Alternative Beta & Hedge Fund Replication, Hedge Fund Industry Trends | By: Alpha Male |
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It’s shaping up to be a banner week for alpha-centric investing in Europe. No sooner had the ink dried on one landmark alpha-centric mandate (see yesterday’s posting about a $3b European 130/30 mandate), when another major European institution announced it would dump some of its funds of hedge funds and place its bets on “alternative beta” (a.k.a. hedge fund replication) instead.
One of Sweden’s public pension plans, the EUR9 billion AP7, announced the news at a conference yesterday. Reports IPE.com:
“Richard Grottheim, executive vice president of AP7, told delegates at the Pension Fund Investment World Nordic 2008 conference in Stockholm today the SEK 80bn (EUR8.6bn) fund had already reduced its allocation to hedge funds from 4% to 2% in 2007 because of ‘disappointing returns’ in the market.”
Grottheim told the gathering that he could get “the same returns” by investing directly in the risk factors that tended to drive hedge fund returns. (see previous posting on AP7’s alpha/beta separation programme)
But is this really the primary motivation for the move? Since hedge fund of funds returns are reported net of fees, it appears as though AP7 won’t be any better off after the shift. Granted, they won’t have to deal with the discomfort of making any fund of hedge fund managers rich (while they simultaneously aim to fund the retirements of hard working Swedes). But how does this shift really make life easier for the pension plan?
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