Sweden’s €9 billion AP-Fonden 7 has made its foray into the hedge fund replication sector opting for a Goldman Sachs absolute return tracker, say reports.
Chief investment officer Richard Grottheim plans to replace a €170 million fund of hedge fund holding with hedge fund replication in addition to recent cuts in hedge funds holdings, which in 2007 went to 2% from 4% because of returns expectations.
The move is a first for AP7 which invested in hedge funds in 2002. “It is not that we did not like the managers, but generally, funds of hedge funds have been delivering lower returns than we expected,” says Grottheim. The funds of hedge funds allocation generated 5-7% returns after fees compared to expectations of 8-10%.
Goldman Sachs’ replication products have demonstrated the “best performance and
highest correlation to the underlying broad hedge fund indices,” according to Grottheim.
He added that the move from an active to passive alternative beta strategy is partially driven by the desire to lower media risk and the cost difference as replication products cost less than a third of funds of hedge funds on average, without a performance fee.
