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Portfolio > Alternative Investments > Hedge Funds

Australian Regulator Studies Allocations to Hedge

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SYDNEY, Australia (–Australian superannuation trustees have allocated A$1.25 billion (US$ 830 million) in hedge funds, according to a survey completed by the Australian Prudential Regulation Authority, the regulator of that country’s financial services industry.

Although that amount may seem low, the survey only represents 28% of the total assets managed by the superannuation industry, according to APRA. A total of 200 funds reported back to the regulator, and 15% said they had made hedge fund investments.

APRA viewed the results as an indication that trustees in general haven’t placed significant portions of assets in hedge fund investments to date. That may come as a relief to the regulatory agency, since earlier this year, APRA warned trustees to beware of hedge funds and described hedge funds as high-risk vehicles with the potential to detract from the investment strategy of the superannuation fund and even place the fund members’ assets at risk.

The survey also revealed that on average hedge funds make up only just over 4% of trustees’ portfolios. Only a small proportion of those using hedge funds reported allocations of more than 10% of their superannuation portfolios.

Overall, most of the hedge fund investments are split between two hedge fund managers, with more than 50% having used a hedge fund of funds manager instead of investing directly in hedge funds. Also the universe of hedge fund and funds of funds managers remains small in Australia, with the 200 superannuation funds surveyed only using 48 different funds.

APRA continues to express concern in the results of the survey, finding that some trustees expressed a degree of uncertainty over the nature of some hedge fund exposures. Some respondents weren’t able to specify the investment strategy used by their hedge fund managers. Wayne Byres, APRA’s general manager, specialized institutions division, said in a statement that the agency would discuss a number of issues with superannuation funds that had reported “sizable” investments in hedge funds.

“APRA will continue fruitful work with the hedge fund industry association, the Alternative Investment Managers Association (AIMA), in developing more guidance for superannuation trustees on hedge funds,” he said in a statement.

In September, AIMA plans on releasing a brochure on hedge fund investing, based on the original document drafted for the Australian marketplace last year. Commissioned by AIMA, the goal of the first report was to help retail investors learn about the allocation of hedge funds within a diversified portfolio.

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