LONDON The Church of England's pension fund has given its blessing to some of the world's biggest hedge fund managers, putting its faith in an industry much maligned for poor returns in recent years, its annual report showed.
The 1.1 billion pound ($1.7 billion) Church of England (CoE) Pensions Board has backed Winton Capital, Bridgewater Associates and BlackRock Advisors to help boost the retirement income for over 32,000 of its clergy and lay workers.
Once viewed as the preserve of high-rolling wealthy individuals, hedge funds are increasingly appealing to conservative investors such as the CoE keen to diversify away from volatile stock and bond markets.
Nearly one third of institutional investors said they have too much cash on hand and not enough money invested in hedge funds, a poll released by Russell Investments in June showed.
The CoE said the new hedge fund mandates, awarded last year, form a core part of its Global Tactical Asset Allocation (GTAA) investment, which is now 6 percent of overall assets and aimed at diversification as well as boosting returns.
"They combine large parental backing and good returns and they're not Johnny come lately," Pierre Jameson, investment officer at the CoE's Pensions Board, said of the chosen hedge funds.
"They've been around a while, have an enviable long-term track record and in many ways we feel quite fortunate to be able to invest in them," he told Reuters.
Although still small, the allocation to hedge funds reflects a broader strategy - to reallocate assets away from UK equities and into global stocks and alternatives - developed by the CoE's pension board and its investment committee over the past three years.
Bridgewater's flagship fund was one of the top-performing hedge funds in 2011, with returns of about 20 percent -- netting founder Raymond Dalio $4 billion and catapulting him into the top spot as the industry's biggest earner.
London-based Winton, which aims to make money following trends in global futures markets, returned 6.3 percent last year even as rivals such as Man Group's AHL struggled. According to the Sunday Times Rich List, founder David Harding's wealth almost doubled in 2011 to 800 million pounds.
The CoE's decision to back the likes of Bridgewater and Winton appears to have paid off so far.
The GTAA allocation, which in total comprises eight different managers running eleven mandates, returned 5.9 percent from the end of February 2011 to the end of the year.
This helped to mitigate an overall loss of 2.4 percent in the CoE's pension fund, highlighting the importance of choosing the right hedge fund manager.
The $2 trillion hedge fund industry had a humbling year in 2011, with the average fund dropping 4.8 percent and some stock-focused funds slumping by an average 19 percent, according to data compiled by Hedge Fund Research and Bank of America Merrill Lynch analysts.
While equities dragged on the CoE's performance, its property investments managed a 7.5 percent gain and its corporate bond holdings 7.6 percent.
The CoE Pension Board manages pensions earned from service since the start of 1998, while pensions earned earlier are financed by the Church Commissioners.
($1 = 0.6441 British pounds)
(editing by Sinead Cruise and Mark Potter)