The Hotel Employees Provident Fund — the largest pension fund in Cyprus — is expanding its hedge fund portfolio to include global macro hedge fund strategies along with the fund-of-funds it already holds.
The €300m pension fund said it would allocate 25% of its strategic hedge fund allocation to a combination of systematic and discretionary macro strategies, and had just completed a manager selection exercise with its advisers Aon Hewitt to this end.
Marinos Gialelis, general manager of the fund, said: “One of the key reasons for investing in the global macro strategy is the diversification it can offer, both to traditional bond and equity portfolios as well as other hedge fund strategies.”
With this in mind, the pension fund had decided to diversify its growth portfolio and consider the inclusion of global macro hedge funds as a satellite allocation to its core fund of hedge funds portfolio, he said.
The managers chosen for the global macros are Capula, Lynx Asset Management and Winton, he said.
The pension fund’s strategic hedge fund allocation is now 15% of total assets, with 11% on multi-strategy and 4% on global macros as a satellite, Gialelis said.
Hedge fund strategies had higher expected returns than bonds, he said, provided a good hedge against inflation and had much lower volatility than equities.
“In the current high volatility phase that has been triggered by the large fall in crude oil prices in late 2014, we expect hedge funds to perform well and global macro hedge funds — systematic and discretionary — provide a high conviction strategy in the medium term,” he added.
The pension fund said its management committee acknowledged that prudential asset management required enough diversification across and within asset classes, and was trying to make sure it considered a very broad range of asset classes for investment.
Gialelis said global macro funds had historically delivered strong returns that were uncorrelated with traditional asset classes.
The Cyprus pension fund first invested in the hedge fund sector in 2011 when it allocated assets to a fund of hedge funds.