Problem With Hedge Funds Is They Forgot How to Hedge, Says $200B Danish Investor

The CIO of Danika, the $200 billion wealth management arm of Danske Bank A/S, doesn’t see hedge funds as part of his portfolio in the near future.

The reason? Hedge funds have forgotten how to hedge.

But he’s still open to investing in the right funds.

More comments from Anders Svennesen, via Bloomberg:

“If you look back over time, there are a lot of hedge funds that were really exposed to the market,” Anders Svennesen, the chief investment officer of Danske’s pension arm, Danica, who was recently made CIO at the bank’s wealth unit, said in an interview at his office outside Copenhagen.

“A real hedge fund ought to be market neutral, but an awful lot of them have been riding the wave of falling rates and rising stock prices,” Svennesen said. He doesn’t see outsourcing to hedge funds as a model that suits his goals here and now.

[…]

Svennesen says the trick is to identify hedge funds that actually live up to their mandate of being market neutral, so that they don’t start bleeding money when a sudden shock upends a price trend. He rejects speculation that today’s low-rate environment has undermined the logic of hedge funds, which traditionally charge high fees for their services.

“Those that really manage to be market neutral, and go in and operate in the right way, deliver a positive return, and there’s absolutely still a need for that,” he said. “Especially in the current environment.”