Key Takeaways
- • Universities Superannuation Scheme, the UK's largest private pension fund, will reduce its external hedge fund portfolio by 50%, shifting toward in-house management of specific hedge fund strategies.
- • The decision follows sector-wide performance struggles: hedge fund redemptions reached nearly $100 billion in 2019 (163% increase from $37.2 billion in 2018), driven by manager inability to generate alpha in a rising bull market.
- • The pension's pooled hedge fund assets totaled £1,760 million ($2,283 million) as of March 2019, down slightly from £1,862 million the prior year, indicating ongoing portfolio contraction.
- • More than 4,000 hedge funds have been liquidated over the past five years as institutional investors increasingly favored lower-cost, high-beta index strategies during the bull market.
- • The scheme simultaneously expanded access to private markets, launching defined contribution plan options for infrastructure, property, private debt, and private equity investments across 320 assets.
Summary
The Universities Superannuation Scheme, Britain's largest private pension fund, announced plans to halve its external hedge fund holdings as part of a strategic realignment away from third-party managers toward in-house execution of hedge fund strategies. According to investment chief Simon Pilcher, the decision reflects disappointing performance from external hedge fund managers amid broader industry headwinds that characterized 2019.
The hedge fund sector experienced unprecedented outflows in 2019, with nearly $100 billion in redemptions—a 163% surge compared to $37.2 billion in 2018. This investor exodus stems largely from the industry's inability to identify meaningful alpha generation during the extended bull market, forcing many funds to close operations. Industry data from Hedge Fund Research Inc. indicates that more than 4,000 hedge funds have been liquidated over the past five years as institutional investors increasingly allocated capital to cheaper, high-beta index strategies that captured market gains without active management fees.
The Universities Superannuation Scheme's hedge fund portfolio reflects this contraction. The fund's pooled hedge fund vehicles held £1,760 million ($2,283 million) in assets as of March 2019, representing a modest decline from £1,862 million the previous year. Rather than continuing to rely predominantly on external managers, the pension will now develop internal capabilities to execute targeted hedge fund strategies, a structural shift aimed at improving both performance and cost efficiency.
Concurrent with the hedge fund portfolio reduction, the pension expanded its private markets footprint, launching defined contribution plan options allowing members to access private market assets for the first time earlier this month. The scheme's private markets portfolio encompasses 320 assets spanning infrastructure, property, private debt, and private equity—a diversification strategy indicating broader institutional repositioning away from traditional hedge fund allocations toward alternative assets with longer investment horizons and potentially greater value generation potential.
The hedge fund sector experienced unprecedented outflows in 2019, with nearly $100 billion in redemptions—a 163% surge compared to $37.2 billion in 2018. This investor exodus stems largely from the industry's inability to identify meaningful alpha generation during the extended bull market, forcing many funds to close operations. Industry data from Hedge Fund Research Inc. indicates that more than 4,000 hedge funds have been liquidated over the past five years as institutional investors increasingly allocated capital to cheaper, high-beta index strategies that captured market gains without active management fees.
The Universities Superannuation Scheme's hedge fund portfolio reflects this contraction. The fund's pooled hedge fund vehicles held £1,760 million ($2,283 million) in assets as of March 2019, representing a modest decline from £1,862 million the previous year. Rather than continuing to rely predominantly on external managers, the pension will now develop internal capabilities to execute targeted hedge fund strategies, a structural shift aimed at improving both performance and cost efficiency.
Concurrent with the hedge fund portfolio reduction, the pension expanded its private markets footprint, launching defined contribution plan options allowing members to access private market assets for the first time earlier this month. The scheme's private markets portfolio encompasses 320 assets spanning infrastructure, property, private debt, and private equity—a diversification strategy indicating broader institutional repositioning away from traditional hedge fund allocations toward alternative assets with longer investment horizons and potentially greater value generation potential.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.