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Enticing, But Dangerous

Pension plans should proceed with caution when looking to hedge funds to boost their returns

By Staff Writer | Updated on September 01, 2003

John Hock, executive vice president and director of global sales at Tremont Capital Management Inc., a hedge fund advisor and fund of funds with $9.2 billion of assets, is hearing a lot more from corporate pension plans these days. Admittedly, 90% of the calls are from managers trying to educate themselves, and only 10% are actually ready to put money in, he says. Still, Hock is optimistic. “Slowly, but surely, over the next couple of years, more and more ERISA plans for a variety of reasons will jump into this space,” he asserts.

Irrespective of the bad reputation hedge funds garnered in 1998, when Long Term Capital Management collapsed despite its impressive collection of Nobel Prize-winning economists and bond market rocket scientists, beleaguered managers of defined benefit plans are having a hard time resisting the prospect of double-digit hedge fund returns in the face of the stock market’s less than inspiring three-year run. While relatively little pension money has made its way into hedge funds–consulting firm Greenwich Associates estimates only 0.7% of all corporate pension assets were invested in these funds in 2002 versus 0.3% in 2001–interest is growing. Greenwich reports that while only 6% of corporate pension plans invested in hedge funds at the end of 2000, that percentage had almost doubled, to 11%, two years later.

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