After sell-off, US$4b investor reviews hedge fund

  • Markets
  • Sunday, 22 Mar 2020

A board on the floor of the New York Stock Exchange (NYSE) on the floor of the New York Stock Exchange (NYSE).

HELSINKI: The chief investment officer of Veritas Pension Insurance Co. will review the firm’s hedge fund allocation amid concerns the asset class is adding little to overall returns.

Kari Vatanen, who started as CIO at the Finnish fund this month, said he can’t guarantee that he’ll continue to allocate 7% to hedge funds, once his review is completed later this year.

"I want to see data and evidence, ” he said by phone. "I fear they don’t work, but I hope to be proven wrong.”

"Of course there are good funds out there as well, ” he said. But the overall takeaway is that "relative to indexes, hedge fund returns haven’t been great since the financial crisis, it’s somewhat of a disappointment, ” he said.

The Veritas CIO says he probably isn’t the only institutional investor reassessing his hedge fund allocation right now, amid signs that few strategies really protect portfolios against the kind of panic-driven trading that’s gripped markets in recent weeks.

"Many investors will have to critically evaluate the role of alternative strategies in their portfolio, ” Vatanen said.

Veritas is now looking into where to cut risk and allocation, he said. And while there’s not really anywhere to hide, the best assets so far have been low-risk government bonds and a couple of low valued currencies as well, he said.

Having previously worked at Varma Pension Insurance Co., where he was head of cross assets and allocation, Vatanen says risk-premia research he’s led shows that "during market crises, there are very few alternative strategies that don’t correlate with tail risks.”

"It’s a bit naive to think that a hedge fund portfolio or alternative portfolio would automatically help” in a sell-off, Vatanen said. - Bloomberg

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