401(k) hedge fund
Hedge funds in a 401(k)? Why aren't future retirees permitted to PROPERLY diversify their portfolios instead of being forced to gamble on stock markets. People need to invest prudently for several decades in retirement. 80 is the new 60 and 100 is the new 80. But what are they going to be ALLOWED to invest in? How can individuals be expected to take responsibility for their pensions when they can't access quality managers, proper diversification or reduce risk with LOWER risk strategies?
Why do regulators feel it necessary to "protect" retail investors from products that most closely align with their actual long term financial planning needs. You can only eat absolute returns NOT relative returns. "Low cost" index funds are expensive considering their abysmal risk-adjusted performance. The risk averse prefer the safety of good hedge funds. Any investor without substantial allocations to skilled absolute strategies has a poorly constructed and overly risky portfolio.
For people in DC defined contribution pension plans it will be their decision as to how to invest from the limited "choice" they are currently given. Many corporate DB pensions are closing to new members. That most, with some exceptions, have failed to use MODERN ways of managing money and hedging risk by investing in ABSOLUTE RETURN is well known. But at least most DB plans are allowed to put money into alternative investments unlike the current DC menu "options".
The 25% ERISA rule is being revamped meaning hedge funds will be able to accept more fiduciary assets, a move that can only help pension beneficiaries and plan sponsors. Anything which lessens portfolio risk, smooths asset/liability funding volatility and dependence on long only stock market speculation should be supported. Long only had their chance and they failed badly. It is time for them to get out the way for superior managers that are better aligned with retirees interests.
Defined benefit pensions generally OUTPERFORM defined contribution pensions. Why? Individual investors pays higher fees, are less diversified and rarely have the experience and advisory resources to construct robust portfolios or pick quality money managers. With self-managed pensions, people must attempt to invest by themselves BUT the best managers are not currently available to them. It is difficult to have a healthy portfolio when the menu is restricted to long only funds.
Regulators seem intent on INCREASING the net worth required to be an "accredited" investor to access skill-based strategies. Most choices available on 401(k) plans continue to be long only index and active mutual funds. No higher quality funds or strategy diversification available for Joe Sixpack or Mom and Pop. Is that a free market? Is that competition? Is that prudent for a fiduciary?
Proper hedge funds are the closest liability match for individual investors saving for retirement. Long only equities are too hazardous and unreliable while bonds and money market funds do not yield enough to generate sufficient capital growth after inflation. Yet hedge funds, the most consistent source of absolute returns, are not available to many that need that performance. Retirees must rely on the stock market with its extended drawdowns and devastating volatility but are excluded from products that BEST suit their requirements.
Don't buy into this "you don't need hedge funds" nonsense that STILL circulates. The 1980s and 1990s were anomalous for stocks AND bonds. Total returns from a simple bond and stock portfolio WERE good but they WILL not be "good" in the future. Reliable absolute returns at low volatility is what retirees need. A diversified portfolio of good hedge funds achieves that. The capital flows from high net worth individuals and sophisticated institutions into hedge funds are occurring for good reason. Superior long term performance.
Strict due diligence, well managed and highly diversified funds of hedge funds, at a minimum, should be available as an option for 401(k) plans. Let people decide what the best place for consistent capital growth is. Why do the regulators restrict retirees from good, low volatility hedge fund products yet continue to permit or even encourage them to speculate their savings away on the stock market rollercoaster? Let the free market decide where people are allowed to grow their pensions. Put good hedge funds on 401(k) menus.
Why do regulators feel it necessary to "protect" retail investors from products that most closely align with their actual long term financial planning needs. You can only eat absolute returns NOT relative returns. "Low cost" index funds are expensive considering their abysmal risk-adjusted performance. The risk averse prefer the safety of good hedge funds. Any investor without substantial allocations to skilled absolute strategies has a poorly constructed and overly risky portfolio.
For people in DC defined contribution pension plans it will be their decision as to how to invest from the limited "choice" they are currently given. Many corporate DB pensions are closing to new members. That most, with some exceptions, have failed to use MODERN ways of managing money and hedging risk by investing in ABSOLUTE RETURN is well known. But at least most DB plans are allowed to put money into alternative investments unlike the current DC menu "options".
The 25% ERISA rule is being revamped meaning hedge funds will be able to accept more fiduciary assets, a move that can only help pension beneficiaries and plan sponsors. Anything which lessens portfolio risk, smooths asset/liability funding volatility and dependence on long only stock market speculation should be supported. Long only had their chance and they failed badly. It is time for them to get out the way for superior managers that are better aligned with retirees interests.
Defined benefit pensions generally OUTPERFORM defined contribution pensions. Why? Individual investors pays higher fees, are less diversified and rarely have the experience and advisory resources to construct robust portfolios or pick quality money managers. With self-managed pensions, people must attempt to invest by themselves BUT the best managers are not currently available to them. It is difficult to have a healthy portfolio when the menu is restricted to long only funds.
Regulators seem intent on INCREASING the net worth required to be an "accredited" investor to access skill-based strategies. Most choices available on 401(k) plans continue to be long only index and active mutual funds. No higher quality funds or strategy diversification available for Joe Sixpack or Mom and Pop. Is that a free market? Is that competition? Is that prudent for a fiduciary?
Proper hedge funds are the closest liability match for individual investors saving for retirement. Long only equities are too hazardous and unreliable while bonds and money market funds do not yield enough to generate sufficient capital growth after inflation. Yet hedge funds, the most consistent source of absolute returns, are not available to many that need that performance. Retirees must rely on the stock market with its extended drawdowns and devastating volatility but are excluded from products that BEST suit their requirements.
Don't buy into this "you don't need hedge funds" nonsense that STILL circulates. The 1980s and 1990s were anomalous for stocks AND bonds. Total returns from a simple bond and stock portfolio WERE good but they WILL not be "good" in the future. Reliable absolute returns at low volatility is what retirees need. A diversified portfolio of good hedge funds achieves that. The capital flows from high net worth individuals and sophisticated institutions into hedge funds are occurring for good reason. Superior long term performance.
Strict due diligence, well managed and highly diversified funds of hedge funds, at a minimum, should be available as an option for 401(k) plans. Let people decide what the best place for consistent capital growth is. Why do the regulators restrict retirees from good, low volatility hedge fund products yet continue to permit or even encourage them to speculate their savings away on the stock market rollercoaster? Let the free market decide where people are allowed to grow their pensions. Put good hedge funds on 401(k) menus.
© posted by Hedge Fund on 3:45 AM
<< Home