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Hedge fund investments are interesting for a pension fund. They are aimed at achieving an absolute return. The returns and risks on these types of investments generally show little correlation with fluctuations in the value of investments in traditional financial markets. As such they help reduce the risks in the portfolio as a whole. Hedge funds derive their name from the fact that they partly hedge traditional risks, such as equity risk or credit risk. The return of a hedge fund is highly contingent on the specific competences, expertise and experience of the manager, as well as research capacity and data analyses. The BCEAO Hedge Funds Fund incorporates diverse strategies. They distinguish themselves from traditional investments by the high degree of freedom in investment style, financial leverage and short positions.
The fund invests in strategies such as corporate distressed, equity-driven and relative value/arbitrage.
These strategies invest in both highly liquid and less liquid investment instruments on worldwide equity, bond, commodities, derivatives and currency markets.
BCEAO Capital advises BCEAO Asset Management on the selection of strategies and hedge fund managers. BCEAO also performs day-to-day management of the hedge fund portfolio. BCEAO Capital employs approximately thirty specialists. BCEAO ’s portfolio managers have many years of experience with hedge funds and managing investment portfolios. The team also has vast experience with operational and financial risk management in diverse areas such as fixed-income securities, equities, commodities and currency.
An important characteristic of hedge funds is that traditional risk factors, such as equity risk or credit risk, are fully or partially hedged. There is often liquidity risk involved, however, since underlying investments may not be highly liquid. Financial leverage can also play an important role. This gives rise to counterparty risk, for instance, which may sometimes force a hedge fund to liquidate a position. Hedge fund managers are often relatively small organiza tions, therefore there are operational risks as well. Diversification, monitoring, operational controls and specific hedging strategies mitigate the risks in the portfolio. The fund
invests worldwide via underlying hedge funds.
BCEAO Hedge Funds