 | KEVIN ARENSON Head of asset management Stenham Advisers |
 | CLIVE GILCHRIST Managing director Bestrustees |
 | JOHN GODDEN Chief executive officer IGS Group |
 | PHIL IRVINE Founder Pirho Consulting |
 | TESSA KOHN-SPEYER Head of UK institutional business Société Générale Asset Management |
 | DAVID PATERSON Head of corporate governance NAPF |
 | DEREK STEWART Managing director Mellon Global Alternative Investments |
 | HARRY WULFSOHN Director Stenham Advisors |
Harry Wulfsohn: Unfortunately, perception has a big impact on the pension fund trustees’ decisions. The press can single out a few high risk leveraged directional strategies and talk about their difficult performance, and lump all hedge funds under this same category. We often read articles about how certain hedge funds are having a difficult time, which is a small subsection of the hedge fund universe, but I have many pension fund trustees calling up panicking, saying: ‘What’s in my portfolio, are you guys invested in these funds?’ There is clearly a large range of risk and return characteristics of all those different strategies and, in fact, some of them are not really hedge funds.
It is important for investors to understand what they are investing in and be clear on the objective of a hedge fund, rather than just relying on branding or terminology.
John Godden: The issue about whether there should be some sort of sub-branding or separation going on is reasonable, but frankly I cannot really see any practical solution to that. Of course, no serious investor is just looking at labels and making a decision based on that. I am not sure we should get too hung up on the fact a label might be a little inappropriate.
Derek Stewart: I am sure there are some traditional long-only strategies that are more complicated or higher risk than many of the hedge fund strategies we invest in. Therefore, it is much more important to look underneath.
A professional investor would not invest in a strategy just because it is labelled a unit trust or a long-only fund – you would look beneath the surface, find out more about the strategy, the risk/return expectations of the asset class and experience of the manager.
Clive Gilchrist: That, of course, supposes that such information is made available to them, because one concern has always been the lack of visibility and transparency, and although enormous leaps have been made in that area, there is still more to be done.
Stewart: My view is that if you are a sophisticated investor, you will only deal with companies that are willing to spend the time and give you the transparency, and if they do not then you are unlikely to invest with them.
Tessa Kohn-Speyer: The problem is that a lot of pension funds feel that hedge funds are a high-risk strategy that is difficult to understand and therefore have been nervous about investing in this area. As a result, they have focused more on traditional asset classes, but hedge fund techniques are increasingly being used there too.
If you use the term ‘absolute return’ to describe a strategy, it seems to be less perceived as being a high risk strategy, whereas if you call it a hedge fund, it tends to be viewed more as a high risk strategy. A clearer indication of risk level in different funds would help.
David Paterson: My guess is that in five years’ time, there will be a series of different fund styles, starting from the conventional index fund, while at the other extreme there will be some pretty aggressive, highly leveraged funds in the outer reaches of what we call hedge funds.
Gilchrist: We need a more accurate description of aims and objectives that the fund then sticks to, rather than the generic term that ‘we are a hedge fund in broadly this sort of area’.
Stewart: By and large, with all the managers we invest with, it is made very clear what they are doing and why they are doing it. None of them have strayed during this stress period, so to me it is not about branding, but getting underneath what a hedge fund is and not trying to generalise it.
Kohn-Speyer: I would say it is more about categorising strategies into different levels of risk and performance in different cycles.
There are still a lot of consultants that do not have sufficient time and resources to dedicate to the hedge fund space, understanding the different means of access and all the different types of strategies available.
Stewart: The consultants, particularly some of the big ones, are in a difficult situation, as many of the people making the decisions have limited hands-on hedge fund experience. This is often because their counterparts who ran the department before now work for a fund-of-hedge funds, as the role is typically more challenging and the rewards are better.
