Global Pension Windfall Transforms Hedge Fund Industry

Investments by deep-pocketed pension fund investors may promise billions of new dollars for hedge funds, but the windfall may disrupt the industry by increasing competition for arbitrage opportunities and renewing demands for transparency and fee structure reform, according to new research by Greenwich Associates. ‘Our research suggests that hedge funds will experience rapid and continued growth as pension funds increase their allocations to the asset class,’ said Greenwich Associates consultant Woody Canaday. ‘But the fact is that trees do not grow to the sky, and the industry could soon be facing some major questions.’ The $11 billion currently allocated to hedge funds by U.S. pension funds represents only one-fifth of 1 per cent of their $5 trillion asset base. Greenwich research indicated that target allocations for these pension funds are 7 per cent of assets for corporate funds and 5 per cent for public funds. ‘If they achieve these targets, we are talking allocations to hedge funds of at least $250 billion,’ observed Greenwich Associates consultant Tim Sangston. ‘These levels would far exceed the capacity that exists in the hedge fund industry today.’

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