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Belgacom postpones decision on e300m alternatives

BELGIUM – The country’s largest pension fund, the e3.5bn Belgacom scheme, has postponed until August a key strategy review that could see part of an e300m inflow to the fund invested for the first time with new managers in hedge fund, property and credit briefs.

The fund, which presented the initial part of its investment review – conducted with Dutch consultant Ortec – to its board last week, says it does not want to leap into alternative investments particularly without first having rigorously checked the potential impact on the fund.

Philip Neyt, director general of the fund, comments:
“ Derivatives is the whole issue at the moment. It largely depends on the input that you put into the model.
“ Like in a lot of studies, especially with quantatitive models it’s OK if you put in high returns and low correlation/risk, because then that is what will come out. You don’t need to be an expert to see that.”

He notes that the fund is building some worst case scenarios into the system.
“ The problem with the alternative asset class is that the track record is rather short. Can it be sustained in the long-term?
“ We have seen data from 1990 up until now, but that was also an economic period which was rather a bull market, so the question is how do they react to bear markets and in a crisis. In a crisis we think that all the correlations will go up, so there are a lot of questions here about the optimisation of the system.”

Neyt says Belgacom is also looking at the cost aspect of hedge fund investment, pointing out that the fund will take a fund of hedge funds approach.
“ We need to think about the cost of the hedge fund, the cost of the individual managers and things like performance related fees.”

Another point he raises is the possible saturation effect on the hedge fund market itself.
“ If everyone goes into hedge funds and if all pension funds are considering this then the efficiencies will come down, because we will all get only a small piece of the benefits.
“ We’ve put in a lot of questions.”

Neyt says the fund has for the first time built real estate into the strategic process.
“ We don’t have real-estate at the moment. We’ve also built in credits, because in the bond markets we will decrease government bonds and go more into credits.”

“ There is also the question of whether we should rebalance now, because we should be more in equities. Since last year though with the performance of bonds being much bigger than equities we are now below our target, which was to be 55% in equities – at the moment we are at around 46%, due to the market effect. So this will be both, new money plus rebalancing, he adds.

The e300m inflow to the fund is currently invested by Belgacom in equities futures.

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