Railpen Withdraws From Hedge Funds – European Exit by Preqin

Following the recent news that Railways Pension Trustee Company (Railpen) has been unwinding its exposure to hedge funds, Preqin takes a look at the wider trends of Europe-based private sector
pension funds’ exposure and activity in the hedge fund asset class.

Globally, the number of private sector pension funds investing in hedge funds has risen over recent years. These investors have also increased their exposure to hedge funds; the average allocation
of private sector pension funds is over 10% as of December 2015. However, over this timeframe the number of European private sector pension funds investing has fallen. Please see below for further
analysis, as well as commentary from Preqin’s Head of Hedge Fund Products, Amy Bensted.

Railpen Withdraws From Hedge Funds

Railpen Withdraws From Hedge Funds

Comment:

“Railpen’s decision to withdraw from hedge funds appears to be part of a wider movement of some Europe-based private sector pension funds away from the asset class. The number of active private sector pension fund hedge fund investors in Europe has fallen steadily since 2013, and while average allocations to hedge funds of the remaining schemes have risen slightly, they are still far below the global average.

Railpen’s exit from hedge funds was part of a wider cost cutting exercise by the investor across its whole portfolio. Indeed fund fees, as well as performance, have also been of concern to many investors. As Preqin’s forthcoming 2016 Global Hedge Fund Report shows, returns and fees both rank in investors’ top three key concerns for 2016, and significant proportions of investors are seeking improvement to management fees (46%) and performance fees (42%) in the year ahead. Preqin’s All-Strategies Hedge Fund benchmark stood at +2.31% YTD as of the end of November 2015; this puts the performance of the sector on track for the worst annual return since 2011.

Although there are signs that some European private sector pension funds are cooling in their outlook towards hedge funds, this group remains an important source of capital to the industry. These institutions represent 5% of all institutional capital invested in hedge funds today, and 26% of all capital invested by private sector pension funds globally. Pension funds within Europe will be looking for hedge fund managers to respond to their concerns surrounding performance and fees in 2016; if this happens then we may see a reversal in this trend towards a smaller participation of these pension schemes in hedge funds.”

Amy Bensted, Head of Hedge Fund Products