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Danish hedge fund manager: Pension fund investments harm hedge fund return potential

Date: Tuesday, April 24, 2007
Author: HedgeNordic

Several Danish pension funds have started to invest in hedge funds. But the large amounts which the funds wish to invest are most often much too big, and ultimately, they may harm hedge fund returns. This is the opinion of Casper Hallas, manager with Scandium Asset Management.

A little like an elephant in a china store. This is how members of the Danish fund industry describe the venturing of Danish pension funds into hedge funds.

Danish pension funds investing in hedge funds is clearly a tendency on the rise, but the large sums of money which the funds wish to invest may potentially blow up the hedge fund size to such an extent that its ability to generate returns is affected.

“Hedge funds grow in accordance with pension funds allocating more assets to them, but only a few realise that most hedge funds do not have the capacity to manage sums of money that large,” says Casper Hallas to Danish financial daily Børsen. Hallas is portfolio manager with the Danish hedge fund management company Scandium Asset Management.

Scandium manages the two funds of hedge funds Scandium Fund Limited and Scandium Absolute Return Fund.

“If you have found a little niche in the shape of a market imbalance and you then pour billions into it, the little market inefficiencies will disappear. It is a natural conflict,” Hallas explains.

At PensionDanmark, a Danish pension fund aiming to invest 5% of its portfolio into credit- and hedge funds within three years, the scenario is familiar. “It is a problem for us. And it is one of the reasons that it takes time to build up exposure in hedge funds. What is of interest to us is small niche areas and within such strategies, it is limited how much money you can actually put to work,” says PensionDanmark CIO Claus Stampe to Børsen.