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Matthias Knab reports from Geneva: Graeme Wheeler, VP and treasurer of the World Bank explained in a key note address at the GAIM Invest conference the hedge fund investment process of the bank and that in 2005 it will increase its $1.5bln hedge fund allocation. The World Bank is since 1981 invested in hedge funds and employs five highly specialised hedge fund professionals, all with a Ph.D. in finance, economic or quantitative sciences. Currently investments are spread out amongst 35 managers.

Wheeler explained proper hedge fund investments require “considerable” dedication and resources, an understanding of both risk exposure and systematic, idiosyncratic risk. Investment and industry cycles need to be understood as well as performance attribution. Today hedge fund portfolios have to be dynamic and risk-efficient. It is not enough just to pick top-quartile hedge fund managers to build portfolios. Stress tests, VaR and scenarios should be performed regularly. All processes should be forward looking and constantly worked on. Wheeler raised the question why so much time is spend analyzing hedge funds. For Wheeler and his colleagues at the World Bank, the answer is clear: the hedge fund arena is the most interesting area in finance, and the place where the alpha seems to be.

Additional reporting by Reuters: Hedge funds no magic cure for pensions......................

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