Mon, Sep 22, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Corporate pensions advised to 'buckle seat belts' and replace equities with hedge funds to reduce portfolio risk

Wednesday, July 02, 2014
Opalesque Industry Update - TeamCo Advisers, LLC ("TeamCo"), a privately owned investment advisory firm that manages portfolios of select hedge funds and other opportunistic alternative assets, today provided an in-depth view of Liability-Driven Investing ("LDI") strategies for corporate defined benefit plan sponsors, specifically focusing on the importance of increasing hedge fund exposure in the LDI growth portfolio in order to reduce volatility. The paper, entitled "Buckle Up, For (Your DB Plan) Safety -- the Risk Paradox of Unrestrained Equity Volatility in Liability-Driven Investing Vehicles," was co-authored by TeamCo Managing Director Jeremy M. Kish, CAIA and TeamCo Director Savannah A. Thompson, CAIA.

In the report, TeamCo notes that:·"LDI aims to stabilize a plan's assets and reduce risk by utilizing a symbiotic combination of a growth portfolio (which grows assets) and a hedging portfolio (which hedges liability risk)."

·Instead of relegating risk solely to the hedging portfolio, returns and risk should be considered in both the growth and hedging portfolios in order to help optimize the LDI framework.

·A growth portfolio is typically largely comprised of public equities, which typically have significant downside volatility and can therefore have an adverse effect on the plan's assets, particularly in a down market environment.

·Given hedge funds' historically lower volatility and their outperformance of a blended equity index, TeamCo believes that LDI growth portfolios should include diversified exposure to select hedge funds to help reduce long-term portfolio risk without foregoing return objectives.

Jeremy Kish said, "While there remain compelling reasons to include some equities in the growth portfolio, we believe it is essential that plan sponsors 'buckle their seat belts' and replace a portion of their equity investments with select hedge funds in order to reduce long-term portfolio risk. Based on TeamCo's analysis, increasing hedge fund allocation in the growth portfolio can significantly minimize volatility without foregoing return objectives, enabling the portfolio to continue to grow assets while cutting risk. Importantly, incremental substitutions of hedge funds for equities can not only help plans survive market turbulence, but can also help them achieve the growth necessary for LDI endeavors to succeed."

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
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. SEC charges 19 investment firms and one trader for breach of Rule 105[more]

    Benedicte Gravrand, Opalesque Geneva: The Securities and Exchange Commission (SEC) started a push to enhance the enforcement of Rule 105 of Regulation M last year to uncover hedge funds and private equity firms that have illegally participated in an offering of a stock after short selling it duri

  2. Fund managers, bullish on Europe, anticipate monetary policy separation of Fed and ECB[more]

    Komfie Manalo, Opalesque Asia: At least 202 fund managers with $556bn of assets under management said that while the European Central Bank (ECB) has eased its monetary policy that sent sentiments towards Europe to pick up, the Fed is expected to hike its rate in the spring of 2015. Investor

  3. Institutions - North Carolina workers call on state pension to dump up to $6bn in hedge funds, UK pension fund criticizes hedge fund fees[more]

    North Carolina workers call on state pension to dump up to $6bn in hedge funds From Forbes.com: The State Employees Association of North Carolina this afternoon called on state Treasurer Janet Cowell to withdraw all investments in hedge funds, which appear to amount to approximately $6 b

  4. Investors looking at other sources for hedge fund-like returns[more]

    Komfie Manalo, Opalesque Asia: Investors who are always on the lookout for higher gains are looking at alternative sources of income, particularly exchange-traded fund industry that generates hedge fund-like returns, according to

  5. News Briefs - Limited partners of investment managers may be subject to self-employment taxes, Just one week left until NYC's Rocktoberfest[more]

    Limited partners of investment managers may be subject to self-employment taxes On September 5, 2014, the Internal Revenue Service (“IRS”) issued Chief Counsel Advice 201436049, concluding that members of an investment manager were subject to self-employment taxes with respect to their e