Hedge Funds Face New Blow as $83 Billion Pension Cuts Them Out

Danish pension fund PFA says it has found a way to boost returns in a world of ultra-low yields: cut out middle men like hedge fund managers and do it yourself. “Part of our new strategy is to do more investments directly instead of via specialized funds,” said Christian Lage, who helps oversee about $83 billion in pension savings as co-chief investment officer at PFA in Copenhagen. “Fund structures are typically very expensive and as yields have come down, the focus on costs has increased quite remarkably.” Most pension funds and insurers rely on third-party fund managers to handle their investments in alternative assets. With low and negative interest rates weighing on returns, cutting those costs has become more compelling. That’s bad news for hedge funds, which are already under pressure with more than 480 shutting up shop since the start of 2015 as returns slumped, and other money managers. “Asset managers that offer easily replicable strategies at high fees, such as hedge funds, are taking a hit,” said Tomasz Grzelak, a Zurich-based analyst at MainFirst Bank AG. “With ultra-low yields, pension funds are fighting for every basis point of fees.”