Preqin Report: Private Pensions Increase Allocation to Hedge Funds

Preqin survey finds more than half of private sector pension funds have some money invested in hedge funds.


When you think of institutions and hedge funds, you generally think of the public portfolios, like California Public Employees’ Retirement System (Calpers) and Yale’s endowment. However, a number of corporations are heavily invested in hedge funds as well.

Preqin, the London-based data expert on alternative investments, has just published an interesting study of the 85 US-based private sector pension funds that actively invest in hedge funds and 17 U.S. private pension funds that are currently considering making their initial investment in the asset class within the next 18 months.

It found that currently more than half (55 percent) of U.S.-based private sector pension funds have some money invested in hedge funds.

The average U.S. private pension fund allocates 9.8 percent of its assets under management to hedge funds. This is above their targeted allocation of 8.5 percent.

Preqin also does not think hedge funds are vulnerable to a reduction in the allocation to bring it back to the target. “Any reduction in exposure to hedge funds from existing investors is likely to be met by new allocations being made in the medium term from the notable number of U.S. private pension funds currently expecting to gain exposure to the asset class for the first time,” Preqin predicts.


A few funds have a big chunk of their assets in hedge funds. For example, the Weyerhaeuser Master Retirement Fund, the pension fund of the forest products giant, has 55.9 percent of its total assets invested in hedge funds, according to Preqin. Altogether, it has the third largest allocation, with nearly $2.3 billion altogether.

The private funds with the two largest allocations: Chrysler Master Retirement Trust, $1.42 billion; and Partners Healthcare System Pension Plan, $2.4 billion. Right behind Weyerhaeuser are General Electric Pension Trust ($2.2 billion) and United Auto Workers VEBA ($2.025 billion).

The private pension funds most prefer investing in fund of funds, favored by 61 percent of the group as opposed to investing directly in single manager hedge fund firms. However, Preqin says newer investors typically start off with fund of funds but may then shift to investing directly with individual managers once they are more comfortable with the asset class.

And what strategies are most favored by the pension funds that have invested directly with a single manager? Long-short equity is tops, cited by 29 percent, followed closely by multi-strategy (26 percent). The rest of the strategies lag far behind.

On average, the typical U.S. private pension fund is invested in 18 funds.