Speaking at the Alpha Max conference – organised by Opal Financial Group and held in Barcelona this month – Peter-Jan de Koning, senior portfolio manager at Dutch pension fund PPGM, admitted hedge funds are “potentially our least favoured choice in the alternative space.”
Mr de Koning said the continuing education process necessary for pension trustees to understand hedge funds and for the pension schemes’ control bodies to authorise such investments, makes it very difficult for them to implement this type of strategies.
Another major disadvantage, he said, is related to fees. “Two and 20 for alpha is great but two and 20 for beta is a rip-off,” he said.
Edwin Burton, trustee that the Virginia Retirement System agreed with this statement adding: “Fees are extremely high and in some hedge fund spaces these are more justified than in others.”
Neil Fatharly, global industry director at KPMG, said that another problem faced by institutional investors wanting to invest in hedge funds is their inability to move quickly once they decide to invest. “Certainly in the UK it is taking up to two years for some large institutions and pension funds to make a decision and carry on due diligence. By the time they get to the end of that, the manager they have selected has moved on, closed the fund or even given the money back,” he said.
Despite some of the negative aspects of hedge fund investing, PGGM’s Mr de Koning added that they still invest some $1bn (€780m) in funds of hedge funds , although this is a minor allocation taking into account that the total size of the fund is over €60bn.
“We are going to grow our alternative space but not necessarily by investing more in hedge funds,” he added.
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