Can SWFs Improve Hedge Fund Transparency?

The International Forum of Sovereign Wealth Funds will collaborate with the Hedge Fund Standards Board to improve governance, transparency, and interest alignment.

Sovereign wealth funds will have a more direct say in hedge fund transparency issues after a deal was struck between two industry bodies.

The new partnership between the International Forum of Sovereign Wealth Funds (IFSWF) and the Hedge Fund Standards Board (HFSB) is intended to “raise standards in the financial industry” through shared knowledge and experience, said Adrian Orr, IFSWF Chair and CEO of the New Zealand Superfund.

The IFSWF pledged to work closely with the standard setting body for the hedge fund industry to ensure better alignment of interests between funds and managers.

“This relationship will ensure that sovereign wealth funds have a voice in the hedge fund standard setting process,” said Orr in a statement.

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Orr, who took on the role as chair of the $5.5 trillion group of SWFs in October, said he would use the position to enhance transparency in the sector.

“Sovereign wealth funds must continue to embrace the principles of good governance, accountability, and transparency to earn respect for their operating and investment integrity,” he said.

The new relationship between the IFSWF and the HFSB will include seminars that bring together members of both organizations, as well as collaboration on issues of mutual interest, including governance, transparency, and financial stability. The HFSB will make its resources accessible to the sovereign fund community and invite these investors to take an active part in the standard setting process.

“The HFSB relies on hedge fund managers and investors to work together to set industry standards, and we welcome closer dialogue with sovereign wealth funds,” said HFSB chair Dame Amelia Fawcett.

Last year, data firm Preqin forecast an increase in interest in hedge funds among sovereign investors as governments began to rely more on drawing down capital.

“Hedge funds can offer a liquid, alternative return stream and we may see more sovereign wealth funds rebalance in the asset class’s favor in order to diversify into an asset that can offer risk-adjusted returns and regular access to their capital,” the report said.

Legal & General (L&G) has taken on $65 million in liabilities as part of its second US pension-risk transfer (PRT) deal.

The agreement was struck with the Pension Plan for Lay Employees and Sisters and Brothers Within the Diocese of Palm Beach under the advisement of USI Consulting Group.

It follows L&G’s entry into the US market in October, when it split Philips’ $1.1 billion bulk annuity with Prudential and OneAmerica.

“The US is a key market for Legal & General and we are uniquely positioned with our US life insurance company, rapidly growing investment management business, and US pension-risk transfer operations,” said Kerrigan Procter, managing director of L&G Retirement. “I am excited to continue to build on the global success that we saw last year as we continue our push into the US market.”

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As of June 2015, L&G had amassed a global annuity book of over $68 billion. The insurer took on an additional $450 million as part of the Philips buyout in October.

While pension-risk transfers have yet to be widely adopted in the US—transactions between 2007 and June 2015 totaled just $67 billion, compared to $180 billion in risk-transfer deals over that time period in the UK, according to Prudential—the demand for PRT deals in the US is “rapidly increasing,” said George Palms, president of L&G Retirement America.

“This is another important milestone in our US pension-risk transfer business,” Palms continued. “We are confident that we are strongly positioned to be a major player in this growing market.”

As part of the buyout, L&G Retirement America will administer the payments to Diocese pension annuitants. L&G Investment Management America will manage the assets.