CNNMoney.com- In the wake of the failure of some large hedge funds — notably two from Bear Stearns (NYSE:BSC) — hedge funds’ biggest customers are staying put and even boosting allocations.
Pension funds — especially public pension funds — move bigger chunks of money with each transaction than even the super-rich individuals normally associated with the lightly regulated funds. A 1% allocation from a pension fund can mean tens of millions of dollars for a hedge fund.
As a group, hedge funds lost less than the market as a whole in the July-August correction.
The HFN Hedge Fund Aggregate Average, comprised of 5,000 funds, gained 0.27% in July, while the S&P 500 fell 4.2%. Hedge funds fell 1.6% in August vs. the S&P500’s 4.9% gain. This year through July, hedge funds were up 7.63% vs. 9.04% for the S&P.
Some of the largest, such as the Texas Teachers Retirement System, have approved investing billions to hedge funds. The pension plan said in the summer that it could shift as much as a third of its assets to alternative investments, including hedge funds.
The legislature blocked the move, limiting the $112 billion fund to putting no more than 5% of assets in hedge fund strategies. But the plan’s managers still see hedge funds as a useful tool. The current hedge fund allocation is less than 2%.
