Industry Updates

Public pension plan investing in hedge funds jumps 50% - Preqin

Wednesday, March 16, 2011

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Opalesque Industry Update - Preqin research shows that the number of public pension systems investing in hedge funds has increased significantly over the past four years. There are now 295 public pension plans worldwide known to be allocating to hedge funds, up from 196 in 2007. The mean allocation to the asset class has also grown in the same period from 3.6% to 6.6%; it is now one percentage point higher than the average private equity allocation of these investors.

Public pension systems and hedge funds:
• Pension systems generally invest in hedge funds for capital preservation and portfolio diversification purposes.

• They seek absolute returns of 6.1%, lower than the average expectations of other investor types which stand at 7%.

• Funds of hedge funds are popular with pension funds – four-fifths of public pension systems that made their first hedge fund investments in 2010 did so through multi-manager allocations.

• 70% of all pension funds investing in hedge funds have funds of funds commitments in their portfolios.

• The top 10 public pension system investors in hedge funds have a collective $836bn in AUM

Public pension systems’ hedge fund portfolio performance:

• As of Q2 2010, hedge funds showed positive one-year returns.

• Hedge funds have outperformed listed equities over a three- and five-year period.

• Hedge funds have outperformed public pension funds’ average annualized return expectations of 6.15% by producing average returns of 9.8%.

• Despite negative returns over a three-year timeframe, public pension system investors have increased their allocations to the asset class; this is in stark comparison to the many high-net-worth counterparts that have reduced their hedge fund commitments during the period.

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(press release)

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