APRA reports on hedge fund survey

The Australian Prudential Regulation Authority (APRA) today announced the results of its survey on the level of superannuation monies invested in hedge funds.

The survey, which followed APRAs cautioning of trustees about the uninformed use of hedge funds earlier this year, showed that 15 per cent of surveyed trustees reported making hedge fund investments, the aggregate amount of which totalled $1.25 billion. Approximately 200 funds, representing 28 per cent of total superannuation industry assets, were reviewed as part of APRAs survey.

APRAs General Manager Specialised Institutions Division, Mr Wayne Byres, said APRA saw the results as an indication that trustees in general had not placed significant proportions of assets in hedge fund investments to date.

Of those superannuation trustees that reported having made hedge fund investments, APRA found that on average these investments accounted for just over 4 per cent of their portfolio. A small proportion of hedge fund users, however, reported that over 10 per cent of their portfolio had been allocated to hedge fund investments.

APRAs survey also revealed that superannuation trustees have, on average, split their hedge fund investments between two managers. Over 50 per cent of trustees had obtained further diversification by investing via a fund-of-hedge-fund manager, rather than making direct investments into individual hedge funds.

The spread of investments across superannuation funds was relatively broad with respondents utilising 48 different hedge fund (or fund-of-fund) managers, indicating very little concentration of superannuation investments into a small group of hedge funds.

Of some concern to APRA, however, was a degree of uncertainty over the nature of some hedge fund exposures. For example, many respondents were unable to clearly specify the investment strategy being employed by their respective hedge fund managers.

Mr Byres said APRA would be taking the opportunity to discuss a number of issues with superannuation funds that had reported sizeable investments in hedge funds.

We will be confirming with those trustees that they have conducted appropriate due diligence and that they have access to adequate information on investment performance, Mr Byres said. We will also be asking them to justify the use of hedge funds within their investment objectives.

Mr Byres added: APRA will continue fruitful work with the hedge fund industry association, the Alternative Investment Managers Association (AIMA), in developing more guidance for superannuation trustees on hedge funds.

APRA is the prudential regulator of the financial services industry including banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. It currently regulates $1.5 trillion in assets for 20 million Australians.

For further information: Media Enquiries only:

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Susan Morey

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