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UK Pension Fund Takes a Chance on Hedge Funds

New York (HedgeCo.Net) – Although confidence in the hedge fund industry has taken a hit, a large and notable UK pension fund has begun to place their trust into alternative investments.  The West Midlands Local Authority Pension Fund, which manages close to $10 billion, was looking to diversify investments, and chose to allocate 8 percent into hedge funds.

In an interview with Reuters, management pointed out that although hedge funds may have had a dismal 2008, they still outperformed the equity markets.  In addition, Chief Investment Officer Judith Saunders believes that hedge funds “have been forced to improve their practices and some of the weaker ones have gone.”  

200 hedge funds who couldn’t withstand market conditions closed up shop last year in the United States alone, thinning out an industry that once managed close to $3 trillion.  
In addition, the unfavorable economic conditions exposed dozens of hedge funds that were running fraudulent schemes.  Many companies feel now is the time to invest, with a number of strong funds that withstood the storm.

The Universities Supeannuation Scheme, UK’s second largest pension fund, is also pursuing diversification, confirming they would allocate 20 percent of their $32 billion in assets under management to alternative investments.  Management recently told reporters “that current turmoil in the hedge fund industry represents a compelling investment opportunity for investors like USS who are able to take the long-term view.”

The West Midlands Fund chose investments that employ absolute return strategies, which are supposed to be less volatile than other strategies.  Saunders has been pondering the idea of investing in hedge since late last year, when she stated the company was considering a 2 percent allocation.  

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net
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