When the FRR announced in early June that it would pursue an allocate 10% of its total assets to alternative products, EDHEC Business School hailed the decision as a positive move toward diversification.
But now that the FRR has announced that hedge funds will not be included in their alternative investments, EDHEC has released a paper blasting its exclusion of hedge funds and their intent to focus instead on commodities, real estate and private equity.
In its paper, titled “Comments from the EDHEC Risk and Asset Management Research Centre on the decision by the FRR (Fonds de Rserve pour les Retraites) to exclude hedge funds from its strategic allocation,” EDHEC says the decision is symptomatic of a pervasive “lack of familiarity with the diversification potential presented by hedge funds.”
EDHEC argues that hedge funds present risk-adjusted performance, they allow portfolio diversification to be improved and, in the case of an institutional investor, the risk of asset-liability deficits to be reduced.
The report even goes so far as to call the FRR’s decision prejudicial and to say that it contradicts the empirical data.