Hedge funds grow in importance
The increasing importance of hedge funds to the UK's wealthiest investors has been illustrated by changes being made to two key benchmark indices.
The Association of Private Client Investment Managers, the UK wealth management trade body, said it will increase the hedge fund weighting within a growth-focused benchmark it publishes from 5% to 7.5% It will do the same for an indicative portfolio targeting a mixture of growth and income.
The changes will take place on September 22. Apcim's income-focused portfolio will remain free of hedge funds. The trade body reviews the composition of these three representative portfolios quarterly after surveying its 217 member firms.
The resulting portfolios are not suggested allocations, but reflect the average allocation to asset classes pushed through by Apcims members on behalf of clients. Despite the rise in hedge fund weightings, advisers tend to be far more suspicious of the asset class than family offices representing ultra-rich individuals
Apcims has increased hedge fund weightings at the expense of the amount put into UK shares, which fell from 50% to 47.5% in the growth-focused portfolio, and from 45% to 42.5% in the balanced portfolio.
Mike Lenhoff, chairman of the committee that decides on weightings, said it had witnesssed more money going into hedge funds due to "a strategic move toward more defensive assets as portfolio managers seek to stabilise portfolio returns against the backdrop of increased volatility in equity markets".
In the 12 months to June 30, the average equities hedge fund displayed volatility of 14.3%, according to data provider Eurekahedge, not far below the average volatility from the MSCI World index of global shares of 14.9% over the same period. However the 1.8% average fall from all hedge funds over this period, as measured by data provider Hedge Fund Research, compared well to the 13.3% fall in the MSCI World index.
The average allocation among asset classes from APCIMS' model growth-focused portfolio after the September changes will be 47.5% to UK shares and 30% to international shares; 5% to each of bonds, cash and commercial property; and 7.5% to hedge funds.
The average income-focused portfolio will have 45% in UK shares and 10% in non-UK shares, 35% in bonds and 5% in each of cash and commercial property after the forthcoming adjustments.
The average balanced portfolio will have 42.5% in UK shares and 22.5% in equities outside the UK, 17.5% in bonds, 5% in each of cash and commercial property and 7.5% in hedge funds.
Apcims members manage assets on behalf of their clients worth about $400bn (€491.9bn).
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