The Clwyd Pension Fund in Wales took the initiative some time ago. It has already been involved long enough to begin to refine its strategy in response to changing market dynamics.
“The Clwyd Pension Fund has successfully invested in a market neutral hedge fund for three years,” says Dave Bamber, Flintshire County Council's assistant county treasurer (technical and pensions). “At that time, there were no hedge fund of funds being marketed. During 2003 the fund effected a fundamental review of fund management arrangements [which it carries out every three_years]. As part of this review the fund effected an optimisation exercise which predicts future investment outcomes based on historical data. This exercise demonstrated that alternative investments, such as fund of hedge funds, not only add performance, but also reduce risk and increase diversification.
“The panel approved a reduction in the exposure to market neutral hedge fund offset by an increase in fund of hedge funds exposure, appointing Quellos and Pioneer to manage mandates of approx. £16m each. The overall asset allocation of the fund today is: equities 66%; fixed income 12%; alternatives 22%.”
One giant leap for Clwyd investment horizons, one small, but possibly significant, step for hedge funds.