It says that pension schemes and fund managers are using the strategies to manage risk – rather than purely drive returns – as they typically have a lower correlation to traditional assets, such as equities or bonds.
“The last 12 months have been challenging for investment managers,” said Peter Hill, hedge fund specialist at Hewitt.
“Macroeconomic forecasts have deteriorated, market volatility has picked up, the credit cycle has had a negative impact on economies and technical conditions have exerted significant pressure on the valuation of some assets.”
While global stock market indices have slumped and the MSCI World Index fell by -9.5% over the last year, Hewitt claims the average return on its hedge fund-of-fund list was 1.9%.
In the last month the J Sainsburys pension fund, which is advised by the Frank Russell Company, reported a 1.8% return on its hedge fund investments.
Some single manager funds, particularly those following an equity long-short strategy, have outperformed, while the top performer on the Hewitt’s buy list returned 25.9%.
Hill urged investment advisers to thoroughly consider schemes’ needs when making an allocation.
“There simply isn’t one solution that works for everyone. In all cases, putting a portfolio of managers together requires careful consideration of the investment managers, any strategy overlap and a sensitivity analysis of fund combinations.”
TW
