Top pension manager IMCO re-allocating $3 billion global hedge fund portfolio

Maiya Keidan
·2 min read
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By Maiya Keidan

TORONTO (Reuters) - Canadian pension manager Investment Management Corporation of Ontario (IMCO) is exiting its C$3.8 billion ($3 billion)investment in fund of hedge funds and re-investing in single-name strategies, CEO Bert Clark told Reuters on Tuesday.

IMCO, a top pension manager in Canada with C$73.3 billion ($58.5 billion) in assets under management, had allocated 5% of their portfolio to fund of hedge funds.

Fund of hedge funds have long faced criticism for high fees and lacklustre returns.

"It was a half dozen funds, which translated into a very large number of underlying funds and in our view, a too-expensive model for that asset class and not enough transparency and probably over-diversification," Clark said.

The allocation to global hedge funds was undergoing a complete overhaul after a review of all strategies had begun in January 2020, he added.

"It was a fund of fund structure and we're moving to more of a direct fund investment and we're just starting to build that out."

Investor searches for fund of hedge funds fell to under 8% in the last quarter of 2020, down from closer to 14% in the first quarter of 2016, according to data provider eVestment.

Fund of hedge funds made up 50% of the total hedge fund market in 2007, but only 10% in 2020, industry tracker PivotalPath said.

"Our external managers are selected based on a proven and sustainable edge (that is, specific abilities, technology or another advantage)," the pension manager said in its annual report published on Tuesday.

While IMCO declined to disclose performance details, the average fund of hedge fund made 2.47% in the first three months of the year compared to a direct strategy, which made 6.08% over the same period, according to Hedge Fund Research data.

"We've really focussed that now on direct fund investments to eliminate those additional costs and get greater transparency and have a more focused approach to the exposures," Clark said.

He said IMCO would invest in a range of hedge fund strategies.

($1 = 1.2532 Canadian dollars)

(Reporting by Maiya Keidan; Editing by Stephen Coates)