When it comes to making significant changes to their allocations, some pension funds are still waiting for clearer signs that markets have normalized before making greater commitments to hedge funds. Both Aon Master Trust, a NZ$99 million (US$67 million) defined contribution scheme in New Zealand, and Flintshire County Council Clwyd Pension Fund, a $1 billion public pension fund in Wales, are hunkering down and preparing to wait.
Greg Lee, the actuary and investment consultant of Aon Master Trust in Auckland, New Zealand, says hedge funds aren't the most attractive class to boost at the moment, largely as a result of the distaste they elicit from trust participants. The defined contribution scheme that Lee oversees offers participants a menu of 16 composite investment portfolios and nine single sector funds from four fund managers, with as much as 10% in hedge funds. Members also have the option to build their own portfolios from scratch. Lee says he's noticed hedge funds receiving less attention of late.
"Last year has, in my opinion, reduced the clients' appetite for hedge funds," says Lee. "We talk about absolute return funds producing negative returns, and it just doesn't make sense to them."
Earlier this year, the trust replaced New Zealand Asset Management, an overseas equity long-short manager, with absolute return manager Milford Asset Management. In 2008, the combined loss for all of the funds invested in the Aon Master Trust was 7.1%. The average performance of master trusts worldwide during the same period was -24.54%, according to Wilshire Associates.
"We reckon we've got the portfolio positioned for the future," Lee says. "Investment finance is in a bit of a storm at the moment, and everyone's trying to batten down the hatches and survive it."
At least every four years, the Clwyd Pension Fund performs a "full, in-depth review," as mandated by its investment principles. The fund was slated to do that review this year, but the process was halted midstream.
"As a result of the uncertainty around the economic recovery, market direction and potential impact of government intervention, it was decided to resume in 2010," says Philip Latham, Clywd's head of pensions/funds, who has been with the system for more than 15 years.
Clywd has a 5% allotment to funds of hedge funds, which lost 23% in 2008%, slightly less than the 25% average loss for hedge funds, according to Wilshire Associates. The allocation is roughly 50% funded, down from 65% at the end of March 2009.
