Ontario Teachers Pension Plan Culls Number of Quantitative Hedge Funds

Sep 23 2016 | 7:59pm ET

Canadian pension fund Ontario Teachers Pension Plan has slashed the number of quantitative hedge funds in its investment portfolio by half and increased allocations in the remainder.

The redemptions from ten of the twenty computer-driven funds took place over the summer, according to a Reuters article citing unidentified sources familiar with the developments. 

Ontario Teachers is Canada’s third-largest public pension plan. It currently allocates $11.4 billion to hedge funds, placing it among the top five hedge fund investors in North America. However, weak returns and high fees have placed a high degree of scrutiny on the investment class, and redemption pressures have remained a factor for most of this year. Indeed, industry asset flows stand at -$51.8 billion for the year to date, according to industry tracker eVestment. 

Another issue looming large for investors is the increasing ease by which ETFs or other more liquid alternative instruments can replicate relatively sophisticated strategies, Reuters said, which further raises questions about the need to pay management or performance fees. 

Finally, for enormous portfolios such as those managed by Ontario Teachers, strategy overlap is playing a role in the number of managers carried. The pension plan reportedly specifically noted a desire to avoid funds invested in similar underlying assets when making its decision, according to the article, and increased allocations to those funds with specialist or niche skills and strategies. 

Battered by the recent closing of multi-strategy hedge fund Deimos Asset Management, in which it made an anchor investment in 2015, Ontario Teachers invests C$171.4 billion on behalf of 316,000 retired and working teachers in the province of Ontario, Canada.


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