WEST PALM BEACH, FL (www.hedgeco.net) – Man Group, the largest hedge fund manager in the world, has recommended safer hedge fund options for institutions. Such options, according to Man, could stillbeat benchmark returns. A growing number of institutions have continued to invest in hedge funds, while a lot more managers have been exploring such investments. Hedge Funds are considered more riskinvestment strategies, partly due to their use of leverage and they trade derivatives instruments as well.
Some analysts believe that up to 15 percent of hedge funds fail each year. Pension fund managers have preferred making hedge fund investments through the highly diversified fund of funds managers, which invest in many managers as well as strategies. John Wilkinson, senior manager at Man Investments told Reuters this week at the Alternative Investment Summit organized by IRC Conferences, that “The big question for them is how to get back to a fully funded position — where they were in 2000.”
Wilkinson suggested that pension funds should consider using swaps to gain exposure to the benchmarks through derivatives that invest in futures contracts or total return swaps. The process starts when �the fund agrees to pay a bank a fee which is typically a money market rate plus a margin measured in basis points.� Such managers then get either a gain or loss on the benchmark for the amount of the swap.
The swap agreement enables the fund manager to achieve the pension fund market exposure while tying little cash altogether. Wilkinson said, “We call it a portable alpha structure and strongly believe this is the way the industry is going.� He added, �the most frequent comment I hear from pension funds in terms of their needs is consistent out performance over and above pre-determined benchmarks.”
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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