Finland’s state pension scheme plans to invest another $500m in hedge funds this year despite persistent concerns over performance and high fees within the sector.
The move will be welcome news for the hedge fund industry, which has had to contend with a number of large investors either scrapping or scaling back their allocations.
Railpen, one of the UK’s largest pension schemes, finished a drawn-out reduction of its hedge funds assets last year, and now has just a 2 per cent exposure to hedge funds.
Europe’s second-largest public pension fund, PFZW, cut its entire €4.2bn hedge fund allocation last year.
VER, Finland’s state pension fund, intends to increase its allocations to hedge funds and other complex strategies to 6 per cent of its total $20bn portfolio. This is despite its existing hedge fund assets returning only 2.5 per cent in 2015 while its overall portfolio returned 4.9 per cent.
The pension fund currently allocates 3 per cent of its assets to hedge funds.
Timo Viherkenttä, VER’s chief executive, said: “We are aiming for a higher return than 2.5 per cent, but considering where the overall hedge fund market is now, the return was not too bad.”
A typical hedge fund charges investors a fixed management fee of 2 per cent and a further 20 per cent performance fee on returns the hedge fund manager generates.
According to figures released by State Street, the financial services provider, in February, nearly half of global pension funds plan to increase their exposure to single-strategy hedge funds over the next three years.
Nordic investors showed the most interest. Nearly 63 per cent of the Nordic pension funds surveyed planned to increase their single-manager hedge fund allocations in the next three years.
However, the survey showed investors have become more demanding. Ian Mills, a partner at LCP, the pension fund consultancy, said: “Investors are much more selective about the funds they are investing in. If you are going to pay 2 per cent per annum management fees and 20 per cent for performance, then you really want the best.”