Editor Pick: Pension Funds in Hedge Funds
The Bear Stearns debacle and the senate report on Amaranth renews concern over the need for hedge fund regulation, an ongoing topic at the U.S. Congress: a congressional research report published this month delves into the risks of pension funds investing in hedge funds, a timely topic in a country where defined-benefit pension plans are growing scarce.
The proportion of U.S. corporate-defined benefit pension funds investing in hedge
funds has increased to 24% in 2006, up from 19% in 2004 and 12% in 2000. Although statistics vary, total corporate pension fund assets allocated to hedge funds in 2006 was 2.1%. Because of hedge funds’ risky nature, rapid growth, lack of oversight, and recent losses, some wonder if they are appropriate investments for workers’ retirement funds. In 2004, the Securities and Exchange Commission (SEC) issued a rule requiring manyhedge fund advisers to register as investment advisers under the Investment Advisers Act. The rule took effect in February 2006, but in June 2006 a court challenge was upheld, and the rule was vacated. In early 2007, while the Bush Administration called for increased vigilance rather than new government rules to handle industry risks, Congress has asked the Government Accountability Office to examine the use of hedge funds by public and private sponsors of defined benefit pension plans.
One Response to “Editor Pick: Pension Funds in Hedge Funds”
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