FRANCE - The Fonds de Réserve pour les Retraites' decision to avoid hedge funds in its new strategic asset allocation has come under fire from the Edhec business school.
The reserve fund announced its decision to allocate 10% of its assets to alternatives earlier this month.
Executives at the €27.7bn French Pensions Reserve Fund subsequently explained to IPE their reasoning for not including hedge funds in the new plan, which did include private equity, commodity indices and real estate and infrastructure.
"We studied it," executive board member Antoine de Salins said, but pointed out there were a number of reasons why hedge funds did not fit in with the FRR.
"The arguments put forward are in fact symptomatic of the freely circulating conventional wisdom against hedge funds, and they reveal a lack of familiarity with the diversification potential presented by hedge funds," Edhec said today.
It says the FRR’s arguments are “not valid when they are put to the test of the numerous empirical results obtained on the basis of methods that are appropriate for the specific characteristics of hedge funds”.
Edhec argues that hedge funds present attractive risk-adjusted performance and that the survivor bias mentioned by the FRR “does not cast doubt upon the usefulness of hedge fund investment”.
And it says “hedge funds allow portfolio diversification to be improved and, in the case of an institutional investor, the risk of asset-liability deficits to be reduced”.
“The reasons behind the FRR's decision to exclude hedge funds from its strategic allocation contradict the empirical results, and the expression of this opinion is prejudicial for the market if one considers the counter-verities that it is conveying,” it concludes.