The fall in markets has now persuaded many UK pension funds to look seriously at hedge funds. Or so says Bobby Riddaway, senior investment consultant at HSBC Actuaries and Consultants Limited, the actuarial, pension administration, employee benefit insurances, accountancy and investment consultancy arm of HSBC Group.
“I believe that a number of my clients will be invested in hedge funds by the end of 2003 as part of a well diversified portfolio,” says Riddaway. “Whilst some fund managers are blaming hedge funds for market falls, others just say that hedge funds make the market more efficient, ensuring that shares fall to their bottom price quicker than would otherwise have been the case.” Headds that UK institutions are particularly attracted by funds of funds because they have the potential to deliver consistent positive returns, by participating in any upside in equity markets and then banking the gains when markets fall.
But the main reason for their growing interest is the dreadful performance of the equity markets over the last two years. HSBC’S IMAGE survey for the three months to end of September 2002 shows the worst negative median return (-15.6 per cent) for balanced pooled pension funds since the fourth quarter of 1987. Equity market returns are even worse and indicate a possible third consecutive year of negative returns, which will be only the fifth time since 1900.
The median for the nine months to September is -21.5 per cent, which means that an equivalent rise in the last quarter is required in order to achieve a zero return over the year 2002. Median returns in the third quarter each year have been negative for the last five years. However, the final quarters have been positive in six out of the last eight years, with the exception of 2000 and 1997, which recorded the lowest at -2.7 per cent in the three months to December 1997.”The negative median in the third quarter of the year is no surprise, but I hope history will be repeated in the fourth quarter,” quips Riddaway.
The tables below show how the best five and the worst five managers have performed over the past three and nine months:
Top Performing Managers3rd Quarter 2002 % Year to date 2002 %Newton Investment Management -12.6 Newton Investment Management -17.5Royal Life -12.7 JP Morgan Fleming -17.9Royal & Sun Alliance -12.7 Halifax (Equitable Life) -18.9Bank of Ireland -13.0 Threadneedle -18.9JP Morgan Fleming -13.6 Baillie Gifford -19.2Median -15.6 Median -21.5
Worst Performing Managers3rd Quarter 2002 % Year to date 2002 %Glasgow Investment Managers -21.2 Glasgow Investment Managers -31.9Edinburgh Fund Managers -18.8 KBC (was UBIM) -28.0KBC (was UBIM) -18.2 Friends Ivory & Sime -25.5Morley -17.1 Gartmore -24.0Insight Investment -16.7 Edinburgh Fund Managers -24.0Median -15.6 Median -21.5
The survey provides performance statistics using capital growth and contribution payments on a monthly basis for forty discretionary balanced pooled pension funds and five consensus funds.