The decision by Railways Pension Trustee Company (Railpen), one of the UK’s largest pension funds, to unwind its hedge fund exposure, is not unique and is part of a Europe-wide trend, according to Preqin, a data provider.
Railpen oversees $32 billion and had more than 10% of its assets invested in 100 hedge funds in 2013. However, this has been scaled back and the pension scheme now invests just 2% of its overall assets in hedge funds. It is also withdrawing the bulk of its $3 billion in private equity with an aim to increasingly co-invest in deals.
“Railpen’s decision to withdraw from hedge funds appears to be part of a wider movement of some Europe-based private sector pension funds away from the asset class. The number of active private sector pension fund hedge fund investors in Europe has fallen steadily since 2013, and while average allocations to hedge funds of the remaining schemes have risen slightly, they are still far below the global average. Railpen’s exit from hedge funds was part of a wider cost cutting exercise by the investor across its whole portfolio,” said Amy Bensted, head of hedge funds at Preqin.
The decision to exit hedge funds comes as many institutional investors complain of high fees and substandard performance. Hedge Fund Research data found the average hedge fund gained just 0.33% in 2015. Nearly half of investors told a Preqin study that they want improvements to the management fees and performance fees charged by hedge funds.
“Pension funds within Europe will be looking for hedge fund managers to respond to their concerns surrounding performance and fees in 2016; if this happens then we may see a reversal in this trend towards a smaller participation of these pension schemes in hedge funds,” commented Bensted.
There have been a series of high profile withdrawals from hedge fund investing. CALPERS culled its hedge fund exposure complaining the asset class was too complex and costly. The London Pension Funds Authority (LPFA) announced in October 2015 it would redeem assets from external managers and run assets in house. This came one year after it publicly admonished hedge funds for their high fees.
Pension funds globally, however, have increased their hedge fund investments and the average allocation is around 10% of overall assets.
Hedge fund exposure unwinding across Europe says study
The decision by Railways Pension Trustee Company (Railpen), one of the UK’s largest pension funds, to unwind its hedge fund exposure, is not unique and is part of a Europe-wide trend, according to Preqin, a data provider.