Superannuation funds must ensure they can undertake proper due diligence of single strategy hedge fund managers prior to giving them mandates as a bad investment decision can lead to poor returns and reputational damage, according to Societe Generale.
“Super funds have fiduciary responsibilities to their investors and are under the supervision of the board of trustees, so they don’t want to make the wrong investment decision,” Societe Generale director and head of structured solutions for Australia Paul Stevenson said.
“If you choose an individual manager and you choose the right manager you get a much better performance.
“Unfortunately, if you pick the wrong one, you can have a poor performance for the investor and that then can have reputational impact on the person making investment decisions and the board of trustees.”
Fund-of-hedge-funds (FOHF) may be the safer option for those superannuation funds that don’t have the right skills and staff levels to conduct rigorous due diligence, Stevenson said.
“FOHFs generally have low volatility targets and diversification, so they’re inherently less risky and maybe a better fit for those super funds around $1 billion in size, as opposed to those that manage around $15 billion. It’s all a question of scale,” he said.
Societe Generale head of structuring and alternative investments Asia Pacific, Antoine Broquereau, said as a result of failed operators including Bernard Madoff, superannuation funds in Australia are likely to gain exposure to hedge fund performance through a managed account structure.
“Institutional investors in Japan, UK and Korea are already going through separate accounts. What we believe is that the same trends will apply in Australia and it might become the standard for the industry,” he said.
“Enhanced managed accounts remove the traditional operational risk of hedge funds … it was only last year that people suddenly rediscovered illiquidity issues and illiquid assets in the pooled fund structure.”
Societe Generale subsidiary Lyxor Asset Management provides a managed account platform that lets institutional investors place money in hedge fund managers including Paulson & Co and Bridgewater.
The platform charges a fee of 85 basis points per year on the amount invested on top of the regular fee charged by the underlying manager.
