Hedge Fund Reader : European Pensions Funds stray away from Hedge Funds

Comments

October 01, 2005

European Pensions Funds stray away from Hedge Funds

The world over, pension funds are shifting their investments into hedge funds for a higher return on their investments. However, as per the report by Greenwich Associates the European pensions funds have chosen to shun the hedge funds. Their allocations to hedge funds and private equity have remained flat at about 1% of assets for each of the past three years. And the ever increasing danger of declining returns from the hedge funds have been point for the European pensions funds to restrain themselves from burning their fingers. The estimates noted that the promising dreams of delivering returns from Continental Europe have been fast eroding due to new accounting rules that seem to penalize risk-taking. Another reason can be attributed to mark-to-market accounting rules which ask European funds to “put on hold plans to shift their assets from government bonds to equities and other potentially higher-yielding investments”. The average European pension fund reported a solvency ratio of 95 cent compared to 105 per cent in 2003. While investments in Government bond were up to 29 per cent at the end of 2004, from 27 percent two years earlier, and investments in cash and equity were flat. IPE.com Reports:

The comments come in Greenwich’s 2005 report on the European investment management industry. It found that solvency ratios at Continental pension funds continued to deteriorate in 2005. This exacerbated the need for improved returns. Greenwich said that the average European pension fund reported a solvency ratio of 95%, compared to 105% in 2003.