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Alternative Market Briefing

Textron CIO forecasts great merger between private equity and hedge fund managers (2)

Wednesday, April 23, 2014

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Charles Van Vleet
Benedicte Gravrand, Opalesque Geneva:

Charles Van Vleet, Textron’s private pension fund CIO, gives his perspectives on why benchmarking against the HFRI is a mistake in a rising S&P environment in a recent Opalesque TV interview. He also forecasts a great merger between private equity and hedge fund managers, explains why the latter may be better at managing structured debt and what hedge funds can do to facilitate investments by allocators.

The wrong way to use hedge funds His predecessor took on a 3% allocation in hedge funds and benchmarked it against the HFRI, he says, but he thinks it is the wrong way to use hedge funds. "My observation of hedge funds is that they are increasingly, particularly in the rising S&P environment we’ve had in the last two or three years, taking on – just like the HFRI in general – more and more equity beta. There are a lot of less expensive ways that I can get equity beta," he comments.

Mr. Van Vleet agrees that the HFRI is a great index, and a "slow rabbit" in which one can pick some select funds. His objective however is not to create a slow rabbit benchmark internally but to "carve out something that truly looks different to rate beta, equity beta, curve currency."

He wants to find hedge funds without the beta characteristics, and benchmark them to LIBOR +200. If he can make a basket of ......................

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