Pension fund rethink may buoy hedge funds-Lipper

Date: Wednesday, June 10, 2009
Author: Reuters.com

* Q1 hedge fund outflows second largest since 1994

* Signs that outflows are tapering off

* Some pension funds rethinking hedge fund allocations

By Martin de Sa'Pinto

ZURICH, June 9 (Reuters) - Hedge fund outflows of $116 billion in the first quarter of 2009 were the second highest since 1994, Lipper data show, yet hedgies may yet receive a boost from some pension funds before the end of the year. Aureliano Gentilini, Lipper's global head of hedge fund research, said on Tuesday he expected hedge fund outflows to taper off in the second quarter and that inflows could return in the third as investor confidence returns.

"Although down 21 percent from the fourth quarter of 2008, outflows were high, but partly because withdrawal restrictions imposed in the fourth quarter were lifted in Q1 of 2009," said Gentilini.

Gentilini also said that, in spite of having their worst ever year in 2008, hedge funds were seeing renewed interest from larger institutions as the dust from the financial crisis settles. Lipper is a Thomson Reuters research firm.

"Institutional investors are opening up to hedge funds again," Gentilini said. "Early evidence suggests some funds are looking to increase exposure to hedge fund-type returns."

This is one consequence of the funding gaps now weighing on pension funds as a result of poor equities performance during the financial crisis and low bond yields, Gentilini said.

He referred to recent data from Standard & Poor's on the current state of U.S. pensions, which showed defined benefit (DB) pension plans at S&P 500 companies will be underfunded by some $312 billion at the end of 2009.

In many cases companies have now replaced defined benefit with defined contribution plans, which put future funding risk on the contributor rather than the plan sponsor, but legacy DB plan liabilities still have to be met.

Hedge funds could benefit as pension funds look to rethink asset allocation.

"In spite of the tough period for hedge funds, their reasonably positive performance in terms of risk to return profile is winning round some institutions," Gentilini said. (For the Hedge Hub blog, visit: blogs.reuters.com/hedgehub/ For the Global Investing blog, visit: here) (Editing by Simon Jessop)