After year from hell, both institutions and advisers are demanding flexibility to invest in alternatives
| Mar 11th, 2009 | Filed under: Institutional Investing, Today's Post | By: Alpha Male |
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Earlier this week several US mega-pensions including Californian behemoth CalPERS (and others) issued a joint statement called “Principles of Financial Regulation Reform: A Model for Change” (PDF of full statement). One of the five principles outlined in the document pertains to the freedom to invest where ever the pension plans see fit:
“…The ability to invest, consistent with fiduciary responsibilities, in an unconstrained investment opportunity set is critical to enable public pension funds to meet their obligations. Any limitations on the universe of available investments will potentially reduce the ability of these funds to generate the needed returns and may increase the risk of the plan.”
Given the preponderance of equity risk in today’s pension portfolios, some say that fiduciary responsibilities should not only provide the “flexibility” to invest in an “unconstrained investment opportunity set”, but the requirement to do so. It used to be that investing off-piste would give the corporate counsel a case of hives. Now, its beginning to look like any outright dismissal of alternative investments runs the risk of landing trustees in hot water.
Despite last year’s negative returns, hedge funds’ dramatic out-performance over equities (now pushing 40% over the last 12 months) and their diversification properties mean that many institutional investors are still drawn to the sector. That continued interest probably helps explain the recent finding that over half of remaining hedge fund investors are institutions.
(Hedgefund.net later confirmed with CalPERS that the “unconstrained opportunity set” did, in fact, include hedge funds and private equity.)
New York State Common Retirement Fund, one of the signatories to the statement, recently increased its own internal limit on alternatives and shows no signs of decreasing it. Crain’s New York Business reports: More…
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