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Survey reveals trend towards increased allocations to hedge funds

Date: Tuesday, August 11, 2009
Author: Hedgeweek.com

A survey of over 150 senior figures surveyed within the UK pensions and investment industries reveals that nearly three quarters of respondents (74 per cent) believe pension funds will increase their exposure to hedge fund and/or other asset classes, while one in eight cited emerging market equities as one of the best asset classes to invest in over the next three years.

Industry professionals are re-assessing traditional investment and pensions models in the light of recent market turbulence, according to the survey published today by the UK-based PR consultancy Penrose Financial.

Penrose Financial surveyed over 150 senior figures at some of the leading pension funds, consultants and investment management houses, including chief executives, managing directors, partners, chief investment officers and heads of communications.

More than one in three industry professionals feared the role of traditional investment consultants will come under threat as investors lose faith in consultants and demand more flexible solutions. Almost 60 per cent of respondents said fiduciary management will challenge the existing pension fund management model in the UK, though a third said pension funds would still value the advice of consultants.

The survey also suggests multi-strategy investment managers, offering both alternative and traditional investments, would prove the most successful business model, with only one in eight envisaging such a positive outcome for traditional long only managers.

More than nine out of ten respondents expected "unsustainable" defined benefit schemes to continue to close to existing members because of cost pressures on sponsoring employers. However, more than eight out of ten respondents also felt the proposed system of personal accounts, aimed at boosting retirement saving among low to middle income groups from 2012, will fail to provide adequate incomes for retirement, as employers will simply level down their existing pension provision to the statutory minimum. Nearly half of respondents nonetheless felt the proposed employer contribution to the new system was excessive.

Other key findings from the survey include:

• Nearly half (47 per cent) of respondents felt that tougher regulation would drastically cut the overall number of hedge funds, resulting in stronger funds with significant assets under management.
• More than four out of ten respondents (41 per cent) thought Ucits IV legislation would take more than two years to come into practice and would have less impact than Ucits III
• Nearly half (49 per cent) of respondents said that though the notion of decoupling in emerging markets is a reality, it will play less of a role in the future due to globalisation, and a quarter thought it was already defunct
• Respondents were split over ETFs, with 45 per cent expecting the class to ultimately rival mainstream funds, and 49 per cent believing they would remain the preserve of sophisticated investors only
• More than two thirds (68 per cent) of respondents thought the era of the "star fund manager" will survive, and that fund managers with proven track records remain an appealing draw for investors, despite concerns about a 'herd mentality'

Sally Todd, managing partner of Penrose Financial (pictured), says: 'This survey paints a picture of an industry in flux, with traditional models under increasing pressure from market upheaval, regulatory change and innovative new approaches. Though defined benefit pension provision is widely seen as unsustainable, at least for private sector employers, the outlook remains uncertain for defined contribution alternatives, and question marks clearly persist over the impact of personal accounts in 2012.

'Although fiduciary management appears to have a bright future in the UK, practitioners in this space will have to prove themselves by producing strong performance. At a time of increasing consolidation, some investment managers face a tough fight for survival, with multi-strategy firms most likely to succeed. The diversified portfolio mix will remain popular, with global and emerging market equities, investment grade bonds and hedge funds expected to be attractive investments over the next three years. In such a climate of rapid change, innovation and flexibility will be required of all market participants, from pension fund trustees to consultants to investment managers.'