The average allocation to hedge funds was just 0.6% of growth investment options across Australia’s A$3.9 trillion or about US$2.6 trillion pension pot in March, compared with 2.5% in mid 2020. — AFP
SYDNEY: One of the world’s fastest growing pools of retirement capital is reducing its investments in hedge funds as regulatory scrutiny grows on fees and performance at Australian pension funds.
The average allocation to hedge funds was just 0.6% of growth investment options across Australia’s A$3.9 trillion or about US$2.6 trillion pension pot in March, compared with 2.5% in mid 2020, according to the most recent data compiled by Chant West, a research firm.
AMP Ltd’s exposure has sunk to around half the prior year due to high fees, while Australian Retirement Trust, the nation’s second-biggest pension, says it doesn’t use them at all anymore.
“Hedge funds are expensive,” AMP’s head of portfolio management Stuart Eliot said in an interview in Sydney, adding that he prefers areas such as direct infrastructure, which he plans to increase.
Global investor appetite for almost every hedge fund strategy this year was down from 2023 after average management and performance fees hit the highest since 2015, a Goldman Sachs Group Inc report found earlier this year.
Meantime, popular and successful multi-strategy firms such as Millennium Management and Citadel aren’t readily accepting new money, while others require lockup periods too long for some pensions to stomach.
The Australian Prudential Regulation Authority runs an annual performance test for funds, designed to weed out under performing portfolios and clamp down on excessive fees.
That scrutiny is one reason Brighter Super doesn’t invest any of the A$32bil it manages in hedge funds, said chief investment officer Mark Rider.
“Some of these hedge funds have promised a lot but haven’t delivered,” he said.
At Rest, an A$85bil pension, a decision was made as far back as 2021 to reduce its hedge fund allocation to zero in part due to a lack of transparency around where the money is spent.
“In many ways the alignment of the owners to our members who care about sustainable development goals over the long term, just couldn’t come together in a way that enabled us to be confident in investing,” Rest chief investment officer Andrew Lill said in an interview.
Other institutional investors are calling for a better deal.
In May, a group led by the Teacher Retirement System of Texas published an open letter to the hedge fund industry, demanding changes to how the money managers get paid.
At the same time, there are parts of the world showing demand for hedge fund business is intact.
Abu Dhabi officials are hoping to lure hedge fund managers to the city, offering perks to attract titans from New York, London, Hong Kong and Singapore. — Bloomberg
