November 10, 2010 / 11:37 AM / 9 years ago

Universities pension fund backs algo hedge funds

LONDON (Reuters) - Britain’s 30 billion pound universities pension fund plans to further increase its exposure to short-term computer-driven hedge funds to cope with volatile markets.

Luke Dixon, portfolio manager in absolute return strategies at the Universities Superannuation Scheme (USS), told Reuters the fund had increased exposure to so-called short-term CTAs (commodity trading advisers) this year and planned to raise it further in coming months.

Short-term CTAs are computer-driven funds that try to make money out of volatile markets by betting on short-lived market moves. They tend to perform better than many other hedge funds in choppy markets such as those seen in May this year.

“We intend to use (them) dynamically. (They) should help us in highly volatile markets. Our expectation is that we’ll continue to go through volatile (conditions),” he said on the sidelines of the Hedge 2010 conference in London.

The move comes even though volatility, as measured by the VIX .VIX index, has halved since spiking at the end of June and is now well below credit crisis levels.

In June USS’s head of alternative investments Mike Powell told Reuters the scheme had begun investing in these funds.

Dixon said USS’s hedge fund portfolio is defensively positioned and has backed funds that try to protect against unexpected events such as a bank collapse and funds that can easily switch between bets on rising and falling prices.

Dixon added that USS, which began putting money into hedge funds last year and has so far invested 950 million pounds with 15 managers, is upping exposure to macro hedge funds focused on emerging markets and commodities, since many traditional macro funds have relatively small weightings in these areas.

USS is planning to commit up to 2 billion pounds to hedge funds over five years.

It currently has around 40 percent of assets in macro funds, 40 percent in long-short equity, 15 percent in credit trading funds and 5 percent in managed futures or CTAs.

Editing by Sinead Cruise and David Holmes

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