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PFZW ditches hedge fund portfolio

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Pensioenfonds Zorg en Welzijn (PFZW), the pension fund for the Dutch health and social sector, has announced that it will no longer be investing in hedge funds due to their ’high costs’ and ‘complexity’.

According to a statement released on Friday, PFZW said that by the end of 2014 it had ‘all but eradicated’ their use and they are not part of the the fund’s new investment policy, which was adopted last year. Under the policy, all investment categories are assessed for their sustainability, complexity, costs and their contribution to PFZW’s objective of index-linking pensions, and hedge fund investments were found not to fully meet the criteria.

In 2003, PFZW was one of the first Dutch pension funds to invest in hedge funds, chiefly in order to achieve greater diversification in the investment portfolio. For a long time, hedge funds were a useful tool in this regard, but lately they have not made a sufficient contribution to this objective. 

Jan Willem van Oostveen, Manager Financial and Investment Policy at PFZW, says: ‘In our new investment policy, we agreed that greater emphasis should be placed on controllability and intelligibility. That’s why a complex investment category like hedge funds, which encompasses such diverse strategies, no longer sits well with PFZW.’

The high costs involved with hedge funds are another reason to stop investing in them. High costs can only be justified if the returns are also high. ‘With hedge funds, you’re certain of the high costs, but uncertain about the return.’

PFZW also considered sustainability and concluded that hedge funds are no longer a good fit for the portfolio, given the high remuneration in the hedge fund sector and the often limited concern for society and the environment. 

In 2013, 2.7% of PFZW’s investments were still in hedge funds. The target strategic allocation for hedge funds has been added to the allocation for equities.

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