Global Pension Crisis: Unfunded Liabilities and How We Can Fill the Gap

CHAPTER 6

Alternatives Are Not Only for the Rich and Famous

Half of the pension equation is about assets, so this would be an unfulfilling treatise on the pension crisis without some degree of focus on the fundamental trends underway in the asset management industry. A review of pension assets must start with a broad overview of the investment management industry, but must then move quickly toward a review of the more recent growth in alternative investments and especially hedge funds. (I will reference other alternative assets like private equity, venture capital, real estate, and so on, but the real trend to watch now is hedge funds.)

PENSION ASSETS AND THE MOVE TOWARD ALTERNATIVE ASSETS

Given the attention that the investment management industry (not to mention the world at large) has put on hedge funds and the relatively unregulated and secretive nature of the breed, this chapter seeks to answer the question of what exactly is going on in the industry and where it is going. The intention is to give readers an overview of the hedge fund space from the perspective of what comprises it, who the participants are (managers, investors, support areas, and intermediaries), how hedge funds are assessed and measured both individually and in portfolio, how investors access hedge funds, and what major issues face the industry. This is increasingly becoming an institutional market and, as such, very much about pension funds.

I want to cover the investment landscape and how those trends, ...