UK Pension Plan Assets Get 23.9% Boost | Chief Investment Officer

(June 25, 2010) — According to an annual estimate by UBS Global Asset Management, assets in U.K. employer-sponsored pension funds rose 23.9% in the year ended December 31.

John Nestor, head of UK, UBS Global Asset Management, indicated that the focus for many pension schemes in 2010 is on diversification and reducing risk, while also aiming to achieve robust investment returns to close funding gaps.

“2008 and early 2009 was an extremely challenging and volatile period for financial markets and investors,” he said. “The large falls across most risk assets meant that pension funds saw their funding positions deteriorate rapidly during this time. Despite the recovery in financial markets during 2009, funding positions have not improved as much as might have been expected due to changes in the value of schemes’ liabilities.”

The asset management firm’s Pension Fund Indicators report revealed U.K. equities, which constitute 24% of pension assets on average, went from being the worst-performing asset class in 2008 to the best in 2009, rising 30.1%. Despite their volatility, over the past 47 years, UK equities have still returned 12.1%, the report said.

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Additionally, the report showed the average UK pension fund’s allocation to equities reduced once again in 2009, with bonds benefiting. The total allocation to bonds is now at 36%, a level not seen since the late 1960s, reflecting investors’ continued risk-aversion after the events of 2008 and early 2009 and demand for liability matching assets, according to the release.

Average levels of real estate, overseas bonds and cash/other held at 7%, 5% and 3%, respectively, identical levels as in 2008.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Patric de Gentile-Williams, chief operating officer of hedge fund seeding specialist FRM, says he’s seeing the most sophisticated investors backing up start-up or small hedge funds again.

(June 24, 2010) — Sovereign wealth funds and pensions are starting to return to small hedge funds again, according to FRM Capital Advisors.

The return reflects a shift away from clients favoring the supposed safety of bigger funds following the credit crisis, Reuters reported, as investors have often regarded them as safer or having better risk management than start-up or small-scale hedge funds.

Chief operating officer of hedge fund seeding specialist FRM, Patric de Gentile-Williams, told Reuters that his portfolios have raised a net $70 million far this year — after raising “very little” in 2009 — and he expects the uptick to continue with additional commitments.

“It’s pension funds with large hedge fund portfolios, saying ‘it’s clearly part of the hedge fund space, we should have an allocation of 5-10% to start-ups, seeding and young managers’,” he said to Reuters, adding that over the past year he had increased the average size of investments he is making with small-scale managers to around $50 million from around $40 million. “We’ve seen some competitors spring up. Very large institutions are getting their own program run by a specialist manager.”

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Separately, a survey by US researchers Preqin of 50 institutional investors worldwide indicates hedge funds are continuing to face problems raising capital more than a year after the credit crisis. According to the research, only one in every 60 proposals by hedge funds to institutional investors results in investment.

“Institutional investors have invested more heavily in hedge funds over the tail end of 2009 and into 2010 following a difficult fund raising period after the credit crisis,” said Amy Bensted, hedge fund data manager at Preqin. “The institutional sector of the hedge fund market has become more important in the wake of the market tumult, as these investors have stuck to the asset class in much greater numbers than the high-net-worth sector. Marketing to institutional investors requires a different approach, and knowledge of an institution’s preferences and how they prefer to source funds is essential in gaining consideration for new vehicles.”

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742