The prospect of a weak bond market in 2005 is prompting a traditionally conservative group of US investors to consider hedge funds for the first time.

Labour union pension trustees and their employer representatives, who have some USD 360 billion in assets, have traditionally taken a cautious approach to innovative investments including hedge funds, a position doubtless reinforced by the media furore over the near-collapse of high-profile fund Long Term Capital Management in 1998.

But now some advisors are beginning to edge their union clients towards investing in funds of hedge funds. And given the need to compensate for the stock market losses of 2000 through 2002 that prevented many pension funds making the modest seven to eight per cent gains per annum needed to meet forthcoming liabilities, hedge funds are beginning to find favour with some trustees in the sector.

Brad Karbowsky, chairman of the USD 2.3 billion National Automated Sprinkler Industry Pension Fund, and David Blitzstein, director of negotiated benefits at the United Food and Commercial Workers, with USD 25 billion in assets, are among those who have been making positive noises about hedge fund investments. And while Blitzstein's union has so far pledged less than USD 500 million to hedge funds, further investment seems likely.

Not everyone in the sector is quite so keen to dip their toes in the hedge funds investment pool just yet though. According to Frank Hurt, president of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, with some USD 5.5 billion in member assets, his organisation, for the time being at least, will be adopting a more cautious wait-and-see approach.