The Railways Pension Trustee Company (Railpen), the GBP21 billion pension fund for UK rail workers, has been unwinding its exposure to hedge funds. And it’s not the only European private sector pension fund to be doing so, according to Preqin.
Globally, the number of private sector pension funds investing in hedge funds has risen over recent years. These investors have also increased their exposure to hedge funds; the average allocation of private sector pension funds is over 10 per cent as of December 2015. However, over this timeframe the number of European private sector pension funds investing has fallen.
Railpen’s decision to withdraw from hedge funds appears to be part of a wider movement of some Europe-based private sector pension funds away from the asset class. The number of active private sector pension fund hedge fund investors in Europe has fallen steadily since 2013, and while average allocations to hedge funds of the remaining schemes have risen slightly, they are still far below the global average.
“Railpen’s exit from hedge funds was part of a wider cost cutting exercise by the investor across its whole portfolio. Indeed fund fees, as well as performance, have also been of concern to many investors,’ says Amy Bensted, head of hedge fund products at Preqin. “ As Preqin’s forthcoming 2016 Global Hedge Fund Report shows, returns and fees both rank in investors’ top three key concerns for 2016, and significant proportions of investors are seeking improvement to management fees (46 per cent) and performance fees (42 per cent) in the year ahead. Preqin’s All-Strategies Hedge Fund benchmark stood at +2.31 per cent YTD as of the end of November 2015; this puts the performance of the sector on track for the worst annual return since 2011.
“Although there are signs that some European private sector pension funds are cooling in their outlook towards hedge funds, this group remains an important source of capital to the industry. These institutions represent 5 per cent of all institutional capital invested in hedge funds today, and 26 per cent of all capital invested by private sector pension funds globally. Pension funds within Europe will be looking for hedge fund managers to respond to their concerns surrounding performance and fees in 2016; if this happens then we may see a reversal in this trend towards a smaller participation of these pension schemes in hedge funds.”
