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IPE special report May 2018

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Austria’s APK wary of funds of hedge funds

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SWITZERLAND - The head of investments of the €1.8bn Austrian multi-employer scheme APK has warned against funds of hedge funds.

Speaking at a conference in Geneva, Guenther Schiendl called for a “conscious and careful” selection rather than buying a ready-made product.

“We would never invest in funds of hedge funds,” he told the conference, organised by the Edhec business school. He warned institutional investors against choosing funds of hedge funds, if they do not fully understand how they work.

Schiendl said that the majority of funds of funds today offer multi-strategy, multi-manager set ups with costs at the single management level as well as at the fund of fund management level. But he said that making a choice can be difficult.

“When we have spoken to fund of funds managers and asked about investment prices and when they would change the allocation to different strategies, we did not get answers that put us in the position to understand what would drive their decisions. This is dangerous.”

“’I do not really know which fund will perform this year, so let’s put some money in all the strategies’ - that is, I fear, what lots of hedge funds managers are telling us. I think a reasonable investor should be cautious about making such a decision.”

He continued that some of the funds could be “a waste of money” and that some investors had the “naïve” conviction that hedge funds are an all-weather solution.

“I do not think that one should give money to people who are investing in a strategy but do not know whether that strategy would make a decent return.”

He suggested pension funds hire independent experts and form their own hedge funds strategy teams - as APK has started to do.

First pension funds should target areas they think are likely to yield returns, then select managers.

Schiendl also criticised strategists that have a zero-fee but require a percentage of profits, which could encourage them to take too many risks. He advocated a fee structure including a fixed fee and an added-incentive fee.

“If one manages other people’s money one should be careful about incentive structures.”

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