Thu, Sep 29, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Alternative Market Briefing

Other Voices: The alpha conundrum: why pension funds struggle to generate consistent alpha through allocation to active managers

Wednesday, June 18, 2014

By: Stanley Altshuller, co-Founder and Chief Research Officer at Novus

Pensions are faced with an ominous future of growing liabilities and declining long-term returns, a trend that could jeopardize a large number of pension funds. The low interest rate environment and stunted expected returns have increasingly led pensions to look toward alternative asset classes such as hedge funds for more robust absolute returns. In the last decade we have, on average, seen pensions increase allocations to hedge funds. By some estimates pensions now allocate over 5% of their assets to hedge fund managers and the number is growing. But can pensions choose the managers that will outperform the market or the average hedge fund manager? For many funds generating alpha in the space has been a continuing struggle. In our seven years of working with large allocators such as public pension funds, we have observed many reasons for underperformance in active management. The problem is not unique to pensions; endowments, sovereign wealth funds and other private funds often suffer the same hardships.

Perhaps the alpha problem can be examined in three stages of the hedge fund investment process for a pension:

Screening:

  • Selecting managers for closer evaluation from the universe
  • Monitoring: Analyzing the manager’s investment process pre- and post-allocation
  • Aggregating: Understanding exposures and risks across an entire portfolio of fund investments. Screening

    ......................

    To view our full article Click here

  • Today's Exclusives Today's Other Voices More Exclusives
    Previous Opalesque Exclusives                                  
    More Other Voices
    Previous Other Voices                                               
    Access Alternative Market Briefing

     



    • Top Forwarded
    • Top Tracked
    • Top Searched
    1. Nobel Sustainability Trust, Prince Albert II of Monaco help launch major new initiative to drive sustainable technologies[more]

      Matthias Knab, Opalesque: The Nobel Sustainability® Trust ("NST") is leading a major new initiative to finance, incubate and accelerate the development of clean technologies. The initiative will start with the formation of the Nobel Sustainability Fund® ("NSF"). NSF will drive faster access t

    2. Studies - Hedge funds’ study reveals vast disparity in types of investors securing side letter arrangements, Cambridge: Look to private investments for best access to LatAm growth[more]

      Hedge funds’ study reveals vast disparity in types of investors securing side letter arrangements A new study of the hedge fund space by industry law firm Seward & Kissel LLP reveals a wealth of information regarding established hedge fund managers’ use of side letters—special agreements

    3. Activist News - Caesars 'optimistic' on deal with hedge fund creditors[more]

      From Reuters.com: Caesars Entertainment Corp said on Monday it remains "optimistic" of reaching a $5 billion deal with the bulk of its creditors to push its main operating unit out of bankruptcy, but one hedge fund bondholder said it will pursue litigation. Caesars offered a sweetened $5 billion set

    4. Hedge funds recover from losses as central banks give markets a respite[more]

      Komfie Manalo, Opalesque Asia: The Lyxor Hedge Fund index was up 0.4% from the week ending September 20 (-2.4% YTD), supported by the willingness of central banks to remain accommodative, Lyxor Asset Management said in its weekly briefing. It ad

    5. Perry Capital closing flagship fund after almost three decades[more]

      From Blooomberg.com: Richard Perry, one of the biggest names in hedge funds, is calling it quits after 28 years. Perry, 61, is winding down his New York-based flagship fund as the industry confronts one of the most tumultuous periods in its history. In a letter to investors Monday, he said his style