Hedge-Fund Secrecy Spurned by ABN Amro’s $27 Billion Pension Pot

  • Pension trust has ‘doubts’ over hedge funds’ risk and reward
  • The industry suffered about $80 billion of outflows in 2016

Hedge funds lack transparency and offer a “questionable” balance of risk and reward, according to the head of ABN Amro Group NV’s 26.2 billion-euro ($27 billion) pension pot, which hasn’t invested in the industry for at least 12 years.

“There are monitoring issues with this asset class,” chief executive officer Geraldine Leegwater said in an interview. “I don’t think they’ll end up on our shortlist in the very near future.”

Geraldine Leegwater

Source: ABN AMRO Pensioenfonds

It’s not unusual for retirement funds to steer clear of relatively high-risk hedge funds, and the ABN Amro pension trust hasn’t invested in them since Leegwater started working there in late 2004.

But it wasn’t until last year that this reticence spread across the fund-management industry, with about $80 billion being pulled from hedge funds in the first net outflows since 2009, data from Atlanta-based eVestment show. The exodus was a backlash against high fees and poor returns as record-low interest rates hurt leveraged investments even as they boosted the value of more mainstream products such as stocks.

Hedge funds tend to be guarded about their holdings and internal workings, a secrecy that’s often criticized by investors. Fifty-five percent of clients would like more openness about how the funds operate and make money, according to research published in 2015 by Northern Trust Hedge Fund Services.

Unclear Strategies

The funds frequently tell prospective clients the same “story,” Leegwater said from Amsterdam. They boast of “excellent returns with low volatility, but with all of the layers and fee structures, we have some doubts,” she said.

Hedge funds often don’t give a daily look-through into their portfolios and some may obscure their activities to conceal the lack of a clear investment proposition, Leegwater said.

Managers of hedge funds are responding to these concerns by increasingly offering managed accounts that give investors more direct control and by enriching their transparency reports, according to Peter Sanchez, the head of the Northern Trust Corp unit in Chicago.

The ABN Amro pension fund was up about 10 percent last year, buoyed by rising bond and equity prices, Leegwater said. The trust’s funding position, expressed as a ratio of assets to liabilities, has improved to 119.1 percent from 117.5 percent at the end of 2015.

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