A good hedge against low returns for pension funds is to put more money – and lots of it – in hedge funds, says Paul Myners, chairman of Ermitage Group. Speaking to a recent hedge fund conference in London, Myners noted that pension funds in the U.K. have suffered from “the negative influence of consultants, misplaced belief in traditional asset categories, slow regulatory acceptance and trustees’ limited knowledge of absolute return investing.” In the U.K., pension funds allocate an average of 3% of total assets to hedge funds, in contrast to 11% on the continent. Myners is pressing pension plans to pump up their allocation to 10 times the current level, to 30%. “The traditional ways of running pension funds are complete nonsense,” said Myners, stressing that an educated trustee is key to making more profitable investment decisions. “Trustees spend very little time on investment matter,” Myners said, adding that they don’t challenge their consultant’s advice because they lack the confidence and “economic incentive to do so.” He even suggested “professional trustees” could serve as pension schemes’ CEOs. Placing blame for the low allocation percentage on consultants, Myners decried, “They know more about alternative investments than three to five years ago, but they are not pushing their clients. Consultants are currently being led by their clients rather than the other way around.” Myners may be in for a hard sell, however, as a recent survey showed that only about 28% of pension funds were happy with their hedge fund returns.
