August 03, 2006
Pension Funds Romancing Hedge Funds
It’s no news that pension funds are now increasingly looking to hedge funds to increase their investment returns. What is interesting is traditionally cautious pension funds are changing their portfolios to increase their allocation range for hedge funds. This means, they have seen the returns that hedge funds can offer them not just once or twice but over a period. And the best part is that these returns are consistently high. Much higher than what stock or bonds can offer. Add to this the fact that hedge funds have become more stable and don’t take too much risk, and you have a winning equation for pension funds.
Take for example CalPERS, the largest pension fund in the United States, which has over $210 billion worth of stock, bonds, funds, and private equity. It is now expanding its investment strategy into hedge fund managers. The fund also increased the target allocation range for hedge funds significantly, to as much as 5% of the plan’s global equities portfolio.
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