U.K. Pension Funds Boost Hedge Fund Searches

By Staff Writer

March 01, 2004 at 07:00 PM

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LONDON (HedgeWorld.com)–Pension fund consultant Watson Wyatt LLP said that absolute return mandates among U.K. pension funds "accelerated significantly" toward the end of 2003 and through this year.

Watson Wyatt doubled its hedge fund mandates in 2003 to 16 from seven in 2002, with hedge funds taking a bigger piece of the firm's overall pension consulting business. Watson Wyatt performed 359 total selections in 2003 and 462 in 2002.

U.K. pension funds are asking for help in selecting hedge funds because they increasingly are moving their money away from benchmark-focused mandates, according to a statement from Watson Wyatt. High-yield and emerging market debt managers also are getting new allocations, the firm said.

The increased interest in absolute returns also is driven by risk-budgeting exercises among pension plan sponsors. Risk budgeting can improve fund efficiency by taking a more holistic view of a pension plan's assets, liabilities, risk and return.

For similar reasons, Watson Wyatt's clients also are creating what the consultant calls a "10-year mandate," a concept that seeks to get away from the short-term benchmarking that dominates institutional investing.

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