Wed, Jul 27, 2016
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. Opalesque Exclusive: California-based manager launches long/short equity hedge fund with unique algorithm[more]

    Benedicte Gravrand, Opalesque London for New Managers: SJL Capital LLC, an investment advisory firm based in California, has launched its maiden fund, the SJL MarketDNA Hedge Fund LP. The fund, which began trading

  2. Manny Roman to move from Man to Pimco[more]

    Benedicte Gravrand, Opalesque London: Emmanuel (Manny) Roman, an investment world veteran, has been hired by PIMCO, the large US bond fund house, as chief executive officer. PIMCO's current CEO Douglas Hodge will assume a new role as managing director and senior advisor when Roman joins P

  3. HFR: Hedge funds post strong gains in mid-July as markets recover from Brexit losses[more]

    Komfie Manalo, Opalesque Asia: Hedge funds posted strong gains through mid-July as the equity markets continued the recovery from Brexit losses. The HFRX Market Directional Index gained +2.17% (+4.22% YTD) and the HFRX Global Hedge Fund Index gained +1.03% through mid-month (+0.19%

  4. News Briefs - Carlyle goes on trial for a financial-crisis meltdown, Private equity and venture capital outperformed public markets in 2015, Pippa Middleton gets engaged to hedge fund manager James Matthews[more]

    Carlyle goes on trial for a financial-crisis meltdown Carlyle Group co-founder Bill Conway was in court on this small island last week recounting one of the most bruising episodes in his private-equity firm’s history: the 2008 collapse of mortgage-bond fund Carlyle Capital Corp. Carlyle

  5. …And Finally - Two men fall off cliff playing Pokemon Go[more]

    From BizarreNews.com: Two men who fell from a seaside cliff north of San Diego told authorities they became distracted while playing augmented reality game Pokemon Go. Encinitas fire Battalion Chief Robbie Ford said one of the men fell about 50 feet down the bluff in Encinitas while the other man fe