NORWAY - Knut Kjaer, executive director of Norges Bank Investment Management, which runs the NOK1.5trn (€182bn) Norwegian Pension Fund - Global, says many hedge funds are overpriced beta suppliers.
"Unfortunately, most management products are delivered as an unclear mix of beta and alpha exposures," Kjaer said in a wide-ranging address to the Norwegian Polytechnic Society.
"Even in the hedge fund industry, which has expanded sharply over the past ten years, many of the products are more like disguised beta exposures than pure alpha exposures."
He said: "Customers pay an unnecessarily high price for a product they could easily have managed themselves or bought as an index product."
"The same applies to many equity funds, money market and bond funds," Kjaer added. Elsewhere in the text he argues that most managers destroy value for customers.
He explained how the fund, the former Petroleum Fund, is on a search for investment talent, both internal and external. The quest for alpha is "to a large extent a search for talent".
He said the fund often terminates management agreements with external managers "the very same day key persons resign".
Kjaer also argued for equities taking a larger share (60%) of the fund's portfolio - and said real estate and private equity are candidates for inclusion in the fund strategy.
"Norges Bank will submit recommendations to the Ministry of Finance this autumn to include property and private equity in the management strategy," he said.
For the full address: