group targeting uk pension trustees with hedge fund of hedge funds product
The broader pension market is being targeted by HSBC Republic Investments which is launching a hedge fund of hedge funds in March.
The group, which has operating bases in London, New York and Geneva, is hoping the fund will break the traditional reluctance of UK pension fund trustees to invest in alternative investment strategies.
The offering is a sub fund of the group's unit trust umbrella, the HSBC Republic Alternative Portfolio, domiciled in Guernsey, and has a mandate to achieve total returns from selective investments in hedge funds worldwide.
Paul Dunning, chief executive officer at HSBC Republic, said: 'The fund is designed to appeal to institutions and pension funds which are seeking to test the water.'
Jamie Murray, product development manager at the group, added the fund of funds structure is starting to hold appeal for some European pension funds and institutions but has yet to gain much interest in the UK. Given that Paul Myners' report last year stated that pension funds need to consider more investments in alternative vehicles, interest in hedge funds has been surprising low, said Murray.
Tony Osborn-Barker, head of investment services at Deloitte & Touche, argued that those advising trustees had limited knowledge of how hedge funds work. However, he added that the present climate does not lend itself to hedge fund investment.
He said: 'Hedge funds have had a good run over the last two or three years but long-only portfolios may be more likely to perform well going forward.'
The nature of pension funds also means that demand for hedge funds will not increase greatly, according to Osborn-Barker. He said: 'Few pension schemes demand absolute returns. There has been a tendency for funds to have a higher proportion of trackers in recent years so they are becoming less rather than more active.'
Viewing the fund as a one-to-two-year project, Murray noted that a lot of work has to be done in the UK market to educate pension fund trustees on how hedge funds work.
Pension fund consultant Watson Wyatt is making inroads in this area, he noted, but more emphasis needs to be made on persuading trustees that sensible amounts invested in hedge funds can add to returns and lower volatility.
The fund will feature a 1%pa charge with the fees of the underlying portfolio already built into the NAV. Typically, HSBC Republic charges 1.75%pa for its fund of funds products but has designed this fund with a more institutional level management fee and an entry level of $2.5m.
There is also a performance fee equal to 15% of any return exceeding Us dollar three month Libor plus 100 basis points, with a high watermark, payable annually.
At launch, the fund will hold some 20 managers globally, consisting of various absolute return strategies and styles. Examples of holdings include Crescendo European, the Martin Currie Absolute Japan and Lansdowne UK Equity portfolios.
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