Focus: Asset allocation - Do hedge funds aid strategic allocation?

(From European Pensions & Investments News)

Byline: Klaudius Sobczyk

Hedge funds have leapt to prominence in the current post-bubble equity markets. Institutional investors have caught up on the idea that in order to deliver future performance and meet obligations, it may be unavoidable to include absolute return vehicles in order to achieve an efficient asset allocation. This is received wisdom among consultants, pension funds and other institutional investors.

Many investors believe that hedge funds provide all the necessary characteristics to make portfolios more efficient. They point to historical data proving that a good deal of funds have low correlation or are un- correlated with bonds or equities. Additionally it appears that the returns are achieved with lower volatility, providing better risk-return characteristics.

Above those strong arguments for the flexibility of hedge funds is another reason why investors should consider …