Risk On, Brain Power Up

Dealing with funding shortfalls will require greater risks, but many pension professionals are worried their funds don’t have the knowledge base needed.

Pension fund boards may lack knowledge of the risks to their portfolios even as they seek to take on more risk in search of greater returns, according to a State Street survey.

“Pension funds will need to develop their in-house risk expertise to assert greater control over increasing risk exposures.”More than a third (36%) of 400 pension professionals from around the world surveyed by the investor services giant said their funds had funding issues requiring greater risk-taking. However, of those people, less than half (43%) said their boards had a “high level of understanding of risks” to their funds. Just 29% of those whose funds were seeking to lower risk said their boards had sophisticated expertise.

“We examined pension funds’ capabilities across four distinct types of risk: investment, liquidity, longevity, and operational risk,” State Street wrote. “For each of these areas, only one-fifth of funds at most consider their risk management to be very effective.”

Large funds were generally better at risk management than small funds, the survey found, while public funds were better than their private sector counterparts.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

“Pension funds will need to develop their in-house risk expertise to assert greater control over increasing risk exposures,” State Street said.

On top of in-house capabilities, the firm added that risk management support from third parties was “unlikely to diminish.” More than a quarter (27%) of respondents said they planned to increase the number of external consultants they use over the next three years, the survey found.

“This support will be particularly important in areas where funds lack specialist expertise, or cannot afford to implement the required risk tools in-house,” State Street reported.

A significant proportion of respondents said their employers planned to change the process for recruiting new board members in order to improve their expertise. More than half (53%) of those funds seeking to increase portfolio risk said this was the case.

Barbara Creed, chair of the trustee board at the New York-based Church Pension Fund, told State Street’s researchers that her fund was “embarking on further education that will involve bringing in outside experts for informal gatherings with our trustees to talk about cutting-edge issues in investments, in pension plan design, and so on.”

Home > News > Newsmakers > $5B Hedge Funds-of-Funds Aurora to Liquidate

Newsmakers April 25, 2016

$5B Hedge Funds-of-Funds Aurora to Liquidate

The Chicago-based hedge fund investor said it would return capital to clients after an acquisition deal fell through last week.

Aurora Investment Management is winding down and will return $5 billion to its investors, the firm confirmed to CIO.

The Chicago-based hedge funds-of-funds manager said it was in the process of contacting investors, and would retain an internal group during the capital-return process.

“Allocations to the industry have declined and new strategies have evolved, which has made it more difficult to maintain the scale needed to best serve investors.”“After considering a range of strategic alternatives, we have determined the best course of action to ensure fair and equitable treatment for Aurora’s investors is to return their capital,” Ted Meyer, spokesperson for Aurora’s parent company Natixis Global Asset Management, said.

The announcement follows the termination of an acquisition deal which would have seen Northern Trust’s 50 South Capital Advisors take ownership of Aurora.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

At the time the deal was struck in March, Northern Trust Asset Management’s president said Aurora’s clients and staff would have deepened the firm’s “expertise in providing alternative investment solutions that combine unique manager sources of alpha with strong risk management and oversight.”

The time frame for Aurora’s liquidation has not been officially announced.

“Allocations to the industry have declined and new strategies have evolved in the 28 years since Aurora was founded, which has made it more difficult to maintain the scale needed to best serve investors,” Meyer continued.

Aurora is the latest in a string of hedge funds to close.

In February, Carlyle announced it would shut down its hedge fund-of-funds subsidiary Diversified Global Asset Management two years after purchasing it.

“Unfortunately, the challenging market environment made it difficult to scale in fund-of-hedge funds and liquid alternatives,” said Carlyle’s spokesperson at the time of the closure.

London-based Nevsky Capital also said in January it would close its flagship $1.5 billion long-short fund and return cash to its investors. BlueCrest Capital Management also announced last December it would return $8 billion of capital and turn into a family office, blaming changing fee levels and the challenge of meeting investor needs.

« The Great Canadian Pension Fight