IPE: Hedge funds improve risk/return ratios for pension insurance firms
24 May 2011
A new research by the University of Oulu has found that including hedge funds in investment portfolios can improve risk/return ratio at work pension insurance firms.
Professor Hannu Kahra, who researched the role of hedge funds in portfolios of earnings-related pension investors in Finland, found that by combining hedge funds with a regular investment portfolio, the risk/return ratio of the optimal CVaR-efficient portfolio is usually better than that of a portfolio containing no hedge funds.
Kahra wrote: "Hedge funds as an investment target have attracted a lot of suspicion and uncertainty. Institutional investors, however, are increasingly interested in them. Regulators, too, need [further] information on alternative investments".
The study noted a successful choice of a hedge fund requires notable expertise from a pensions company, the use of consultants and possibly also investing in databases and programmes that help to analyse the data.
"Large investors with sufficient resources have the opportunity to benefit from scaling benefits in selecting hedge funds", Kahra wrote. "Smaller pension investors, on the other hand, may outsource their choice of hedge fund to a fund that is specialised in investing on behalf of other funds."
