Hate hedge funds? Better re-thing that...

[Savoir Faire-Demogague in NJ]

World's Best Hedge Fund Actually a Pension?

pensionpulse.blogspot.com/2012/02/worlds-best-hedge-fund-pension-fund.html

Mark Cobley of Financial News reports, Danish pension fund makes record 26% return:
ATP, the €78bn Danish national pension fund, recorded its best ever financial return in 2011, despite the markets stalling in the second half of the year.

It made an overall return on assets of 26% - that amounts to Dkr125bn, or €16.8bn, it said this morning.

This impressive looking result was mostly due to a hedging strategy, which enabled it to keep ahead of substantial growth in its financial liabilities resulting from low interest rates. But ATP also took further risk-reducing steps in the middle of 2011, selling off assets such as equities, credit and commodities, which helped protect the fund against falling markets.

Lars Rohde, ATP's chief investment officer, told Financial News today: "We are currently using only a small fraction of our available 'risk budget', so we may increase our allocations to these return-seeking assets this year. But we still think we are in for a rollercoaster ride in the markets, so we will be very cautious."

Pension funds' liabilities, or the total value of all the pensions they have promised to pay, are calculated using expectations of what interest rates will be in the coming decades. These expectations are indicated through the real-time market for long-dated bonds, or prices in the related swap markets.

These markets have been dramatically affected by the ongoing eurozone crisis. Central banks have set rates low in an attempt to stimulate growth through policies such as quantitative easing - bond-buying - and investors have flocked to government bonds considered low-risk, such as UK gilts, German bunds or indeed Danish government bonds.

As a result of all these factors, ATP said its liabilities increased by €16bn during 2011 - almost as much as its assets grew. Around €14bn of this was due to falling interest rates while another €2bn was the result of a tax bill.

ATP's hedging strategy, which aims to insulate the fund's exposure to Danish interest rates, mostly through swaps, did what it was intended to last year - though not 100% perfectly. It covered the fund against most of the liability increase, but recorded a small €1.5bn loss.

This was mainly down to a technical issue, explained Rohde: "Basically, there aren't enough Danish swaps for us to buy. The vast majority of our hedging activity is therefore done with Danish government bonds, German bonds and euro swaps. This means we are at risk from any differential between Danish interest rates and German rates."

(Click link for full text of article)

[billisonboard]

The OP talks about a pension fund that uses "a hedging strategy". I don't have a problem with fund managers working to improve the financial condition of a fund that benefits a large group of people. I was not able to find how much those who are running this fund personally benefit. That is where I would potentially have an issue. When individuals pile more onto their plates at the buffet line of life than they can possibly eat simply because they can is what bothers me.

[Savoir Faire-Demogague in NJ]

Hedge funds take huge risks with investors capital. That is why investors in such ventures are required to have very high net worths and large buy ins.

[workpublic]

in the US hedge fund "funds" are borrowed from banks, not from individuals with high wealth.