NETHERLANDS - The €100bn asset manager PGGM is planning to invest directly in selected hedge funds to increase transparency and cut costs.
The asset manager will invest via segregated managed accounts rather than pooled funds, and has teamed up with Lyxor Asset Management to handle the operations, technology and infrastructure of its platform.
Lyxor manages more than $10bn (€7.3bn) on its own managed account platform.
PGGM said the new "exclusive and private platform" for its clients would set a new standard for institutional investments in hedge funds.
Managed accounts give investors in hedge fund strategies day-to-day position-level transparency that, combined with adequate infrastructure, can significantly enhance risk management and portfolio construction.
They are also able to use the IT, reporting, legal, prime services and custody infrastructure of the platform provider.
In March last year, the California Public Employees' Retirement System (CalPERS) announced its intention to move toward a "focus on customised vehicles, managed accounts and other methods to improve control of its [hedge fund] assets".
And in April this year, the UK's Universities Superannuation Scheme (USS) selected Man Investments' managed account platform for use in its hedge fund programme.
These three pension funds are part of a broader trend to employ managed accounts for some or all hedge fund investments, particularly as investors move from fund of funds to direct allocations.
Some industry observers predict the 4-5% of assets invested outside pooled funds at the moment could triple or more over the next few years.
David Uitdenbogaard, spokesman at PGGM, said: "By avoiding the traditional way of investing through funds of funds, we can be closer to the actual investments and therefore better apply our socially responsible investment policy.
"Moreover, we can save considerably on fixed fees and performance fees of intermediate managers, as well as on the cost of accountants and administration."
Jan Soerensen, PGGM's head of hedge funds, said: "This development fits within our strategy to have more direct control and oversight on investments as a leading responsible investor.
"Hedge funds have an attractive risk/return, but show little transparency."
PGGM's arrangement with Lyxor will be similar to that between USS and Man Investments.
Speaking to IPE earlier this year, Mike Powell, from USS's absolute return strategies team, explained that the scheme was effectively leasing Man Investments' operational infrastructure to support its own hedge fund allocation programme.
"We have ultimate ownership of the assets; daily transparency and risk monitoring; and, because we negotiate an IMA directly with the manager, we can also put our own risk constraints around the strategy ourselves - to prevent them from moving into illiquid instruments, for example," he said.
According to Uitdenbogaard, PGGM will re-allocate part of the present investments in funds of hedge funds, adding that new investments will also be pooled through the platform.
He said PGGM would be working with dozens of dedicated managers, but declined to identify them by name, adding that negotiations had not yet been completed.
PGGM is the pension provider and asset manager for collective pension schemes - mainly in the care sector - with more than 2.2m participants in total.