Big Schemes Opt for Hedge Funds

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Byline: Pirkko Juntunen

Some of the largest pension funds in the UK are considering investing in hedge funds for the first time, according to a report by Morgan Stanley.The pension funds of British American Tobacco, Imperial Chemical Industries, Metal Box, Prudential, Pearson, Morley, Barclays, Sainsbury's, Shropshire County Council and West Midlands County Council are considering hedge fund investment or have already done so.

Typically, UK funds invest $100m ([euro]91m) as an initial amount but Morgan Stanley believes there is potential for more substantial allocation in the future. One investment consultant said investing in hedge funds is coming of age and pension funds need to allocate between 5% and 10% to make a difference.

The Morgan Stanley report suggests that institutional interest is beginning to shift with allocation now turning to modest inflow as pension funds want to diversify.

A new argument in favour of hedge funds is that rating agencies are starting to consider pension funds as debt. Consequently, chief financial officers and management teams realise pension fund liabilities can have a significant impact on corporate investments. Despite positive signs, UK institutions still lag behind Europe and the US. Some of the reasons stated by UK pension funds for not investing in hedge funds, according to Morgan Stanley, were risk-aversion and fees. …