Increasing numbers of pension funds in Europe are making the choice not to use hedge funds in the region since returns have dropped off, according to a report released by Connecticut-based Greenwich Associates.
The report notes 8% of European institutions plan to use hedge funds as vehicles for investment this year, compared with 19% in 2004. The proportion planning to hire a hedge fund manager has dropped from 23% to 8%.
Patrick McCoy, head of investment consulting at KPMG, says that after investors learn more detail about hedge funds, they tend to take a step back and reconsider. “When you do an analysis of hedge funds...who is taking the risk here? The investor takes the risk, and who takes the reward? Well, the hedge fund takes a lot of the reward. Scratch beneath the veneer. If it were that easy, we’d all do it.”
Peter Tompkins, a partner in the investment consulting team at Pricewaterhouse-Coopers, detects the same pattern. “There is still a persistent curiosity about hedge funds,” he says. But there’s a lot more talked about than actually done.”
According to Tompkins, only pension funds with assets greater than £5 billion ($8.8