In the past week we've reported on another pension scheme ditching hedge funds, this time Cornwall Pension Fund, due to concerns over transparency and cost.
As my colleague Lisa Botter wrote in a blog post last week, UK pension funds seem to be bucking a wider trend of thoroughly positive sentiment towards the asset class.
Looking through our sister title MandateWire’s data on the mandates reviewed, increased and disinvested by schemes so far this year, the UK picture is indeed mixed.
While seven schemes have so far this year reported increasing their hedge fund allocations – some incremental – five have decided to reduce or dump theirs altogether. Some schemes have looked to increase their fixed income allocation, while others like Oxfordshire have decided other return-seeking strategies are a better fit.
Illustration by Ben Jennings
So while it is too early to declare the death of hedge funds within institutional portfolios, the historical reticence from UK pension schemes seems to persist, while the pull of the diversified growth fund remains strong.
Elsewhere, the Law Commission’s report is a welcome clarification for schemes looking to integrate into their investment choices factors other than pure short-term returns.
Taking its proposals forward would require that we no longer lump environmental, social and governance issues alongside ethical ones in a big pot. This could be helpful.
ESG issues, as factors in long-term performance, have been adopted by many larger schemes. But the ethical question of whether to invest in tobacco or arms manufacturers is a different and more divisive question.
It is fair that members have a say where possible, subject to costs. While they might not understand whether a hedge fund is better than a DGF, they may have consensus views on what their retirement pot is used to fund.
Ian Smith is editor of Pensions Expert. You can follow him on Twitter @iankmsmith and the team @pensions_expert.
