Pension funds will continue to invest in alternatives, says consultant
The CEO of Allenbridge Investment Solutions (AllenbridgeIS), an investment adviser to pension funds, is bullish pension funds will continue to allocate into alternatives.
Odi Lahav, CEO at AllenbridgeIS and former head of the European Alternative Investment Group at Moody’s, said pension funds globally would continue to put money to work at alternatives, including hedge funds, given the state of other asset classes. “Equities have not performed since 2008 and have been shown to be volatile while medium-term expectations for economic growth imply that their performance is unlikely to improve any time soon. Meanwhile, unless you move down the credit risk spectrum, bonds have become a return free risk rather than a risk free return,” said Lahav.
Some pension funds – globally - are reportedly rethinking their allocations to hedge funds amid recent underperformance. Preqin data revealed private pension plans are cutting back on the hedge fund exposures with the asset class currently accounting for 6% of their portfolios, down from 8% in 2008. However, Preqin also said public sector plans are increasingly embracing hedge funds.
“Admittedly the performance of hedge funds overall has been disappointing recently but the top hedge funds have done incredibly well. Compared to the performance of equities and bonds, investing in alternatives is still an attractive way for pension funds to achieve their long term goals and meet their liabilities. You just have to find the right managers and manage your portfolio as the environment evolves,” he added.
Investment consultants such as AllenbridgeIS exert a huge amount of influence in pension fund circles. A survey by Goldman Sachs Prime Brokerage revealed 48% of institutional investors used investment consultants while 49% utilised operational due diligence consultants such as Albourne Partners. Some commentators have criticised the larger investment consultants for allocating purely to brand name managers – many of whom have failed to deliver decent returns. Another point of contention is the lack of actual portfolio management expertise at these consultants.
“A lot of our team have worked in alternatives and our advisers have held portfolio management roles. Furthermore, we are entirely holistic in our approach and advice to investors, always considering the context of the alternative investment portfolio as part of our clients’ larger portfolio and liabilities. Brand name and size only enter the equation if it is warranted given a particular clients’ needs,” highlighted Lahav.
AllenbridgeIS was formed in May 2012 following a merger between AllenbridgeEpic and Moody’s Alternative Investment Group in which the ratings giant took a 24.9% stake in the venture. The combined business will continue to provide Operational Quality (OQ) ratings to hedge funds, using the methodology created at Moody’s, as well as advisory services to investors including operational due diligence, investment due diligence, manager selection services, portfolio construction and structured investment solutions.
The firm currently works with a variety of pension funds with approximately $50 billion in Assets under Advisement. These include a number of UK local authority pension plans such as Worcestershire County Council and Bromley County Council, and several corporate plans such as the BA Pension Fund.