Study: Bridgewater No. 1 Hedge Fund Among US Public Pensions

A new study by Preqin shows that Ray Dalio’s Bridgewater Associates has captured the largest hedge fund commitments from public pension funds.

(March 16, 2011) — A recent study by London-based research firm Preqin shows that Bridgewater Associates ranks as the most popular hedge fund among public pensions.

The next five most popular hedge fund firms among public pension investors, according to the study, are: K2 Advisors, Grosvenor Capital Management, Pacific Alternative Asset Management, GAM, and Blackrock Proprietary Alpha Strategies.

Following Bernie Madoff’s massive ponzi scheme, conventional wisdom was that pensions and other investors would turn their backs on hedge funds, but the report by Preqin negates that assertion. Despite negative returns over a three-year timeframe, public pensions have increased their allocations to hedge funds. Nearly 300 public pension plans worldwide now invest in the asset class, a 51% increase over the past four years. Preqin’s database of institutional investors shows that 295 government pension funds worldwide were invested in hedge funds in the first quarter 2011, compared to 196 plans as of Dec. 31, 2007. Additionally, the research indicates that another 49 public plans that are planning to make their first hedge fund allocation within the next year. 

Hedge funds have become more popular among public pensions than private equity, according to Preqin’s report. In total, the amount of public pension assets currently invested in hedge funds is $127.3 billion.

Overall, the leading 10 public schemes allocating to hedge funds have assets under management of $836 billion. “Public pension plans are one of the most influential groups of investors and their increased uptake of hedge funds is shaping the new institutional era of hedge fund management,” wrote the report’s author, Amy Bensted, Preqin’s manager of hedge fund data.

Furthermore, Preqin’s findings indicate that while 70% of all public pension fund investors in hedge funds have some exposure to funds-of-funds, an increasing number of institutional investors are moving toward making direct investments into the asset class. The results explain the Massachusetts Pension Reserves Investment Management Board’s (MassPRIM) recent decision to  embark on a comprehensive asset allocation review, shifting from a fully fund-of-funds investment strategy to incorporating more direct hedge funds. To be truly responsible to taxpayers and pension recipients, the shift shows the need to be willing to change thinking, strategy, allocation, and management guidelines as circumstances change, MassPRIM spokesman Barry Nolan told aiCIO. Furthermore, MassPRIM’s decision signals an effort by the fund to eliminate millions of dollars in fees as well as the threat of over-diversification that some assert comes from relying solely on a fund-of-funds approach.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href=''></a>; 646-308-2742