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Matthias Knab reports live from the Hedge Funds World conference, Tokyo: Andrew Raisman from Hermes Pension Management shares some insights „from an investor on hedge fund investing”:

Hermes is 100% owned by BT Pension scheme and manages $103bln, including $45bln from external clients. Hermes acts as advisor and manager. Currently the scheme is in deficit (92% funded). In this context, Hermes is introducing new asset classes like private equity, hedge funds and plans to go into commodities (in 2006). The rationale is to reduce risk and to provide a better risk and return profile. Hermes follows the following process:

• analyse specific risk/return characteristics
• analyse impact on scheme
• allocate portion of risk budget and hence AUM
• decide between internal or external management
• test against previous position

• risk reduction without return reduction: diversification, low correlation with equities, equity like returns in the long run, lower volatility
• absolute return
• access to skill

• alpha/skill, not beta
• innovation
• risk transparency
• appropriate fees
• appropriate liquidity/lock ups
• robust business models and good governance

• UK equitie......................

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