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Investment Management by Pension Funds

By Paul Cummins FCCA AITI MSc.Multimedia Systems

25 November 2004

Graeme Wheeler, vice-president and Treasurer of the World Bank , speaking at the GAIM Invest alternative investment conference in Geneva , in week ending 19 November 2004 was reported by Reuters on 17 November as stating :

"Our main concern is that we have many institutional investors seeing hedge funds as modern-day alchemists solving their funding problems."

Reuters stated “Hedge funds, which can use specialist financial techniques to make money regardless of market rises or falls, have boomed in recent years, attracting capital from investors looking for alternatives to equities and bonds. “

The World Bank's Wheeler said pension funds were attracted to hedge funds' ability to make money at a time when most economists expected stock and bonds to generate moderate returns compared to the stellar gains of the 1990s.

Some of the graphics on the website will assist in simplifying the concepts of investment management

"Low nominal returns add to the pressures that institutions face ... it does draw them into the hedge fund space," he said.

The Financial Times on 22 November quoted Wheeler in the following terms:

“Areas widely misunderstood, Mr Wheeler said, included

leveraging, where hedge funds borrow much more heavily than conventional institutions to enlarge their bets;

hedge fund valuations, which sometimes trail the real value by several months;

liquidity, where several months' notice is often needed to exit investments;

and the high concentration, and thus risky nature, of many hedge fund portfolios.

Investment management in pension funds is clearly diversifying.