Among the stories we published this week was news that New York City Comptroller Scott M. Stringer plans to invest an additional $1 billion with emerging managers interested in doing business with New York City's five pension funds.
About halfway down, our story points out that, subject to appropriate due diligence, a newly appointed manager will be an inaugural "emerging manager" committed to investing in hedge funds.
It's been quite a week, on our site at least, for this particular investment class. Last Friday we posted a blog from financial author Rich White called "5 ways to help clients navigate liquid alternatives." The story pointed out that leading hedge fund managers are considering the merits of expanding by launching registered funds.
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And this past Monday, we ran a feature titled, "Are hedge funds too much for the 401(k) market?" It's a question the industry apparently is asking itself more and more frequently. It seems the answer is no.
What that means for the retirement industry is a quick immersion into hedge funds strategy if you haven't already. It's a pretty safe bet plan sponsors and/or retail clients will start asking about them soon.
Whether hedge funds would catch on with investors is another matter entirely. I, for one, would be delighted to get a taste of what heretofore has been available only to the wealthiest clients. But even if such mutual funds clear all regulatory hurdles and are available for 401(k) participation, many retirement-oriented investors and, moreover plan sponsors, might very well balk at the higher fees that come with these funds.
In addition, not everyone in the DC market has the appetite or ability to grasp all the investment strategies that come with the inclusion of these funds in a portfolio.
Liquidity is another bugaboo. Hedge funds, and other alternatives, typically sometimes don't offer the same liquidity as more traditional mutual funds. That factor might limit participation by retirement-focused (as well as) other investors fearful of being locked down, even if it's only for a single quarter.
I read a paper this week from Hewitt EnnisKnupp that basically says hedge funds (as well as real estate and commodities) are making their way into the DC market place and it expects that trend to continue and grow.
It also says these kinds of alternatives are best used in target date funds, which can stem misuse.
Should these new products be introduced into the DC market? Absolutely. I can't really say most people near retirement age willing to embrace what they might consider an exotic strategy. But for millennials, they might be just the ticket to protect them long-term. But caveat emptor, as it pertains to both plan sponsors and the retail market.
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