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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
For Hermes, the reasons for investing in hedge funds were:
- risk reduction without return reduction: diversification, low correlation with equities, equity like returns in the long run, lower volatility
- absolute return
- access to skill
In detail, Hermes wants from hedge funds:
- alpha/skill, not beta
- innovation
- risk transparency
- appropriate fees
- appropriate liquidity/lock ups
- robust business models and good governance
Hermes ran extensive quantitative models evaluating the impact of allocating to alternatives from equities. The current asset allocation targets are:
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