Asset AllocationFebruary 12, 2020

Massive UK Pension to Cut Its External Hedge Fund Portfolio in Half

The Universities Superannuation Scheme intends to utilize its in-house investment team over managers.

Reported by Steffan Navedo-Perez

The UK’s largest private pension fund, the Universities Superannuation Scheme, plans to cut its external hedge fund holdings by 50%, said investment chief Simon Pilcher, according to a report from Bloomberg.

The pension’s rationale is credited to disappointing performance executed by its hedge fund managers, following a huge pattern where investors around the world redeemed nearly $100 billion from hedge funds in 2019, an increase in outflows of 163% from nearly $37.2 billion in 2018. Hedge fund managers struggled to identify pockets of alpha in a rising bull market, causing the industry to witness more fund closings than launches.

Instead of mostly utilizing external fund managers, Pilcher said the pension will now in some cases opt for an in-house team to execute its specific hedge fund strategies.

The fund’s pooled hedge fund investment vehicles comprised £1,760 million ($2,283 million) in assets by the end of last March (the latest data available) a small decrease from £1,862 million the year prior, according to its 2019 annual report.

Don Steinbrugge, CEO of hedge fund consulting firm Agecroft Partners, advised earlier this year that the firm is predicting an uptick in hedge fund allocations from pension fund managers in 2020.

More than 4,000 hedge funds have been liquidated in the past five years, according to Hedge Fund Research Inc. Many investors have been opting for cheaper, high-beta indices that ride the bull market.

The fund began allowing members of its defined contribution plans to invest funds in private market assets beginning earlier this month. The pension’s private markets investments include 320 assets in infrastructure, property, private debt, and private equity

Pilcher was named CEO of the investment management unit of the scheme last May. He’s responsible for overseeing the fund’s £64 billion pension fund, providing benefits for academic staff throughout the United Kingdom. He was previously CEO of institutional fixed income and chairman of real estate at M&G Prudential.