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Pension funds fire underperforming hedge fund managers

Date: Monday, April 21, 2008
Author: HedgeWorld

Institutional investors are firing underperforming hedge fund managers, say institutional consultants. Loss-incurring quant funds are particularly under pressure from pension fund withdrawals. The pruning and reallocation of assets are also hurting long/short equity strategies, tactical asset allocation specialists and traditional long-only fund managers.

Wilshire Associates disclosed that 10% to 15% of clients have withdrawn money from quant managers, reports Pensions & Investments. The percentage increases to about 40% if it includes pensions that have placed managers on a watch list. Angeles Investment Advisors said that the investors it advises began redeeming from long/short quantitative managers towards the end of last year. Casey, Quirk & Associates found that requests for proposals for quant strategies have dried up. Callan Associates expects more outflows this year.

P&I claims that managers under the microscope for products that are now out-of-favor include Mellon Capital Management, San Francisco; Barclays Global Investors, San Francisco; State Street Global Advisors, Boston; and Goldman Sachs.

Pension fund redemptions confirm the ongoing reports of hedge fund firms disclosing heavy withdrawals or of receiving large redemption notices. Several of the hedge funds experienced sharp downturns during market turbulence and some have closed down. Credit strategy hedge funds in particular have experienced redemption applications from pensions and other investors.

P&I findings are interesting because pension fund trustees in the past acted conservatively and slowly. The time lag between dissatisfaction and withdrawals was relatively long. Now pension fund operational teams and their advisors are moving swiftly to push withdrawal recommendations through at trustee meetings. They are under pressure to counter underperformance in their own portfolios.