Focus on tail risk before all else, Dutch pension urges hedge funds
Thijs Conen, managing director of hedge fund investments at one of the world’s largest allocators to the alternatives industry, has urged the industry to focus primarily on tail risk, to remain useful and relevant to its clients.
Conen is managing director of hedge fund investments at the Opportunity Fund, linked to the APG Dutch pension, which has €11bn committed to hedge funds.
While this is large in absolute terms, it is less than 5% of the pension’s total assets.
Conen said the fund’s hedge investments had made over 7% per year over 11 years, more than its equities, but he turned first to the issue of tail risk protection when discussing the hedge fund industry.
He pointed to funds such as Man Group’s Tail Protect fund as an example of a manager keeping the danger of severe external market shocks high in its mind.
Conen said he preferred “complexity and less liquidity” when it comes to hedge fund investing, as these are two attributes more readily available in less widely distributed, non-Ucits products.
He described ‘complexity’ as typified by strategies such as residential- and commerical-backed mortgage securities, which have rebounded since being a major cause of global financial stress from 2007.
Conen added he preferred investing in smaller managers, not the industry’s very largest.
When allocating, APG draws on the services of New Holland Capital, a unit it spun out from itself to provide research and other services. It has also taken a stake in the seeding industry by investing €250m in the IMQubator seeding platform.
Speaking at the European hedge fund awards dinner for Hedge Funds Review, he also said the industry must work on improving its corporate governance as regulators increasingly seek to regulate the industry.
APG is developing frameworks to guide discussions with managers over issues such as fees, sustainability matters and operational standards.
It is a keen member of the standard-setting Hedge Fund Standards Board.