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Public pension funds increase hedge fund exposure by 50%

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GLOBAL - Public pension funds globally have increased their exposure to hedge funds by 50% over the last four years, a new survey by Preqin shows.

Additionally, the research firm reported that close to half of hedge fund investments in the Netherlands were conducted by pension schemes, with the median figure allocated exceeding $3bn (€2.1bn).

Overall, Preqin said asset allocation for hedge funds had risen from 3.6% to 6.6% between 2007 and now, while it estimated that the 295 public schemes currently investing in them would be joined by a further 49 over the next 12 months.

The report, which examines schemes from a number of global locations, cited the UK's Port of London Authority Pension Fund and US-based Denver Employees Retirement Plan as two schemes that had first entered the asset class last year.

Amy Benstead, manager of hedge fund data at the company, said the increased interest from public pension funds, increasing from 196 to 295 investors since 2007, was shaping a new institutional era of hedge fund management.

"Pension funds have realistic return expectations, and as they gain more experience of the asset class, there has been a fundamental shift in these investors toward allocating to hedge funds for capital preservation and portfolio diversification," she said.

Meanwhile, Dutch pension schemes accounted for the largest share of hedge fund investors in the country, claiming a 46% share of invested capital, with asset managers coming a distant second and allocating 17% of all assets.

The most popular fund choice for those based in the Netherlands was a comminged-direct fund, followed closely by a commingled fund of hedge funds.

Further, a third chose a long/short equity approach for the investments, with 27% opting for an event-driven approach.

The typical portfolio size saw Dutch investors allocate assets to between 20 and 25 hedge funds, with the mean target allocation accounting for 15.6% of its assets.

Overall, the leading 10 public schemes allocating to hedge funds and surveyed by Preqin have assets under management of $836bn.

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