Pension schemes' share of hedge fund investments hits lowest in 5 years – Goldman

By Nell Mackenzie

FILE PHOTO: City of London financial district

© Thomson Reuters
FILE PHOTO: City of London financial district

LONDON (Reuters) – Investments by global pension schemes fell to the smallest proportion in five years of overall hedge fund assets at the end of last year, a Goldman Sachs survey showed on Wednesday.

Pension funds accounted for almost 30% of the wider hedge fund industry’s investors at the end of last year, the smallest share since 2018, the Goldman note said, adding that this represented the biggest shift in hedge funds’ investor base.

GRAPHIC: Pensions as part of overall hedge fund investor base-

“In spite of the strong hedge fund performance they experienced in 2022, it appears that frustrations built in prior years may have continued to weigh on allocations,” said the note.

Only one year, 2020, saw over 50% of those surveyed say that hedge funds performed better than expected. In every other year, this number was less than a third.

Many of the pension funds which allocate to hedge funds are in North America, the region that saw its investor base thin the most compared to Europe and Asia, the note said.

Pensions still remain the largest client base for hedge funds. Hedge funds in the Asia-Pacific region and Europe both saw an influx of money from sovereign wealth funds domiciled in the area.

Long-only fixed income – meaning bets on bond prices moving higher – as an asset class saw a huge increase in demand, driven by the change in the interest rate environment, according to the Goldman note.

Private equity saw the most significant fall in investor appetite, a reflection of concerns over portfolio illiquidity and performance challenges, the note said.

(Reporting by Nell Mackenzie; Editing by Dhara Ranasinghe and Jan Harvey)