U.K.’s Largest Pension Fund Plans to Halve Hedge-Fund Holdings

(Bloomberg) --

The U.K.’s largest private pension manager is slashing its investment in hedge funds, joining an exodus of investors fed up with years of mediocre returns and high fees.

The Universities Superannuation Scheme plans to halve its 1.8 billion-pound ($2.3 billion) investment in hedge funds and have its in-house managers employ some of those firms’ strategies, said USS investment chief Simon Pilcher. Disappointing returns have contributed to the decision, he said. The pension giant manages 68 billion pounds for more than 400,000 members in U.K. higher education.

Hedge funds were hit hard as investors pulled almost $98 billion in 2019, the most in three years. The spike in redemptions came as the industry lagged behind the S&P 500 Index, which returned 31% last year with dividends reinvested. Hedge funds on average gained 9.2%, according to data compiled by Bloomberg. More than 4,000 funds have been liquidated in the past five years, according to data compiled by Hedge Fund Research Inc.

That kind of performance, and stiff competition from index-tracking funds that are cheaper to use, has led to an investor revolt against hedge funds’ traditional “2 and 20” fee model, with many firms charging far less.

©2020 Bloomberg L.P.

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