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Portfolio > Alternative Investments > Hedge Funds

Canadian Institutional Investors Investing in Hedg

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GREENWICH, Conn. (–Canadian pension plans and endowment funds are taking a keen interest in hedge funds, according to a recent survey of U.S. research firm Greenwich Associates.

Greenwich said its research reveals widespread changes in the Canadian market in a year that has been challenging to plan sponsors.

Greenwich interviewed 264 Canadian corporate pension plans, public pension plans and endowment funds on investment trends in April and May. Researchers found that diversification in the number of managers and strategy is growing as the number of plan sponsors and endowment funds investing in hedge funds is set to increase.

Of the respondents, 9% now invest some proportion of their portfolios in hedge funds, up from 8% the year before. And of those not currently investing in hedge funds, 11% said they expect to in the coming year.

In Canada, hedge fund use is most popular among endowments and foundations, which invest 1.7% of their total assets in hedge funds, according to Greenwich. Public and provincial funds invest 1.1% of total assets, corporate funds invest 0.4% and Canadian subsidiaries of U.S. corporations invest just 0.1% of their total assets in hedge funds.

Still the actual amount invested in hedge funds is small. John Webster, a consultant at Greenwich said, “Private equity holdings by pension funds are almost unknown outside the United States and represent approximately 1% of total fund assets in Canada.” Total market assets invested in hedge funds totals 0.9% by plan sponsors, according to the research report.

Another investment trend is the increased use of derivatives, becoming a well-established investment tool with more than half of the funds surveyed reporting investments in derivatives, up from only 38% four years ago.

The ways in which derivatives are used vary. A total of 13% said they invested directly in derivatives to implement investment decisions such as changing asset allocations and country allocations. The remaining 87% said they do not invest directly but allow derivatives to be used by their outside managers.

A total of 20% allow the use of derivatives at the manager’s discretion, and another 20% said that derivatives used by outside managers is to achieve additional foreign exposure above and beyond the 30% foreign property limit in Canada.

Greenwich recently released the results of its survey: European institutional investors plans to move into hedge funds.


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