Facilitator: Niall Buggy Expert: Deborah Wardle (Mercer)
Headlines:
- Over time, diversification remains a strategy for the way forward (albeit with a slight variation)
- To achieve the full benefits of diversification, Hedge funds should be a key component of a portfolio
- Technology has played a role in the evolving of Hedge Funds uptake - it helps to be sharper on the demand for Hedge Funds
- Hedge Funds require good judgement to be rewarded but current environment is unstable, so performance is often poor
Context:
Diversification as a Key Strategy - Over time, diversification remains a strategy for the way forward (albeit with a slight variation)
Looking back to 82, Investment asset allocation was split 80% Fixed Income vs Equity 20%. In recent times however, the populous split has been 60:40. Today, questions arise on whether the returns seen over the period are still achievable with the current split.
Hedge Funds & reasons why clients are reluctant to invest:
To achieve the full benefits of diversification, Hedge funds should be a key component of a portfolio. Whilst true in theory, there were several reasons noted why clients don’t invest in HF such as Performance, Lack of transparency, Headline Risk, Fees.
Impact of Increased Regulations - Hedge Funds require good judgement to be rewarded but current environment is unstable, so performance is often poor. Increased regulations have had an impact on Hedge Funds. Back in 82, there were no regulations hence managers made their judgements. Currently, regulations are high hence managers are less nimble.
Impact of Technology - Technology has played a role in the evolving of Hedge Funds uptake - it helps to be sharper on the demand for Hedge Funds
Private Markets - Whilst growing, private markets are fragmented across the different investment classes within the private debt and equity markets, where research is a barrier to entry and education of the client. Outcomes are mixed, especially as interest rates are rising.
Key takeaways:
- Pension Plans have shifted away from Hedge Funds due to Stewardship and fees (but not limited to these). Are we likely to see a shift back and is the Government doing anything to help this along?
