Some investors may see it as ironic that a fund dedicated to supporting floundering pension plans is remaining invested in the hedge fund industry even as many of the pensions its backs are leaving hedge fund investments as quickly as possible. The Pension Protection Fund (PPF) is a British fund with about $30 billion in assets that is dedicated to supporting retirement funds in the UK. that run into trouble. And yet, at a time in which many pension funds around the world have made headlines for their dramatic departures from the hedge fund scene, the PPF is steadfast in its devotion to hedge funds as a means of diversifying its investments. What is the PPF and why is it remaining in the hedge fund world?

PPF Contains 20% Alternative Assets

Key to the success of the PPF, which has seen the development of a surplus of more than 4 billion pounds, is its focus on alternative assets. According to a report by Bloomberg which quoted PPF head of investment strategy Ian Scott, the fund maintains about 20% of its AUM in alternative areas. This proportion has only grown since the fund was founded 12 years ago. What kinds of alternative assets are in the fund's scope? The alternative assets represent a variety of areas and include infrastructure, private equity and, importantly, hedge fund investments. Scott indicated that "part of the alternative portfolio is invested in a portfolio of hedge funds. There are characteristics there that have been helpful over time."

Could PPF Lead the Way in a Return to Hedge Funds?

At a time when many pension funds (and other investors as well) are migrating away from hedge funds, some see PPF's decision to remain in the area as a sign that institutional investment in hedge funds could surge once again. Nonetheless, Hedge Fund Research, Inc. indicated that clients of hedge funds withdrew $70 billion in assets from those funds in 2016, the largest figure since 2009 and the wake of the financial crisis.

Among the pension plans exiting hedge fund investments is the largest U.S. state fund, California's Calpers. At the same time, though, PPF has increased its alternative asset allocation from 18.7% in 2015. According to Bloomberg, PPF aims annual returns of 1.8% over its liabilities. This is especially important given that pension deficits are running at exceptionally high rates in the U.K., and PPF is likely to be called upon to assist with more and more funds if these trends continue. Scott's confidence in alternative assets, including hedge funds, remains strong. He indicated that PPF's strategy "is designed to match the liabilities and provide some outperformance that will contribute to the long-term sustainability of the fund. By allocating to these alternative assets, we think we can, over time, generate a higher return than we would otherwise."

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