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Half of UK schemes eye hedge funds - survey

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UK - Nearly half of UK pension funds are either already, or are considering, investing in hedge funds, according to a survey by UniCredito’s Pioneer Alternative Investments.

The survey, which focusing on pension funds with combined assets of over 77 billion pounds (113.9 billion euros) reveals that, of the 49% of funds that back hedge funds, 16% are currently investing while the remaining 33% are actively looking at the asset class.

Twelve percent of those already investing in hedge funds are planning to increase their exposure between this year and next year.

Funds of hedge funds are the most popular products for pension funds investing in alternative assets, with 86% take-up.

The majority of hedge funds investors, 73%, said they invested for performance enhancement. The remaining 27% invest for defensive reasons.

The most important criterion is track record, with 92% of respondents saying a good track record was the top reason to select managers while 67% rate length of time in business as the second reason.

A high level of ‘undefined risk’ was the most important reason for not considering hedge funds for 35%, while high fees discouraged 26% of those surveyed. Twelve per cent of pension funds also see hedge funds as ‘a fad’ and an equal percentage thinks to be too small for this investment.

Thirty-eight per cent avoid hedge funds because of a lack of transparency while performance risks are also a factor for 22% of panelists.

Nigel Meir, Pioneer’s head of sales and distribution, UK and Scandinavia, said: “These findings demonstrate how a significant portion of the UK pension fund market is now open to investing in hedge funds.”

“The industry is making huge strides in persuading scheme managers and trustees of the benefits of hedge fund vehicles” he continued, stressing that some ‘outdated perceptions’ however had remained.”

Mentioning high fees, put forwards by pension schemes as a reason not to invest in hedge funds, he said they should be measured in terms of whether hedge funds had delivered on their return objectives.

He also said that risk concerns, ‘although overdone’ were understandable, but added the company had the ‘financial backing and resources’ to invest in good risk control systems.

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