Investing May 8, 2003

Hedge Funds Track Higher in April, Short Bias Bashed

May 8, 2003 (PLANSPONSOR.com) - The Hennessee Hedge Fund Index produced a 3.04% return in April, bringing the year to date return to 4.03%, according to the Hennessee Hedge Fund Advisory Group.
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The Hennessee Latin America Index was the top performer for the second month in a row with a solid April return of 14.61%, and a 19.63% gain year to date. Brazil was the main driver in the region once again as US Treasury Secretary John Snow said he was “deeply impressed” by Brazil’s new government and market perception has seemingly turned from distrust to near confidence.

Additionally, Argentina’s GDP grew by 5.8% in the first quarter and its industrial production was 21.4% higher than this time last year. The second best performer for the month was the Financial Equities Index, with a gain of 8.23% (7.42% year to date). April marked the seventh straight month in which spreads have narrowed; they are now back to where they were before March 2000. In third position was the Telecom and Media Index, posting a return of 5.84% (5.08% year to date) for April boosted by the large Nasdaq increase and AOL’s share price jumping 26%.

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The upswing in equity markets weighed on the Short Biased Index, which gave back 5.47% in April (-6.92% year to date), the weakest monthly performer.   Hedge fund managers holding large short positions were caught out by the market’s quick turnaround and could not cover their shorts in time to completely mitigate losses, according to the Hennessee analysis.

The Market Neutral Index followed with a loss of 0.23% (-0.39 year to date) as market neutral manager’s shorts appreciated slightly more than their longs. The Regulation D Index rounded out the bottom three with a gain of 0.44% (2.31% year to date).

For the previous month, the Hennessee Index produced a return of 0.62% (See  Hedge Funds Up Slightly in March  ).

Compliance May 7, 2003

Actuary Group: Different Mortality Tables Valid for Pension Calcs

May 7, 2003 (PLANSPONSOR.com) - While the potential for blue-collar pension disparity grabbed headlines earlier this week, there appears to be a legitimate case to be made for distinguishing between different worker groups, according to an industry actuary group.
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>In fact, according to Ron Gebhardtsbauer, senior pension fellow with the American Academy of Pension Actuaries, research confirms the notion that different levels of pension funding can be appropriate for different employee groups, including blue versus white collar – and that can be a valid way for lawmakers to proceed in pension reform efforts. The Academy conducted the research along with the Society of Actuaries.

>A New York Times story earlier this week quoted an actuary critic as saying that the provision in the latest pension reform bill from Representatives Rob Portman (R-Ohio) and Benjamin Cardin (D-Maryland) didn’t adequately differentiate the potential mortality of white-collar employees. (See  Actuary Finds Fault with Portman-Cardin Pension Provision).  If the mortality table flexibility survives in the Portman-Cardin bill as it wends it way through Congress, it could potentially save employers with blue-collar workers billions of dollars in pension costs.

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>Regardless of questions raised about the Portman-Cardin bill, however, Gebhardtsbauer told PLANSPONSOR.com that the Academy believes:

  • that a mortality table drawing a difference between white and blue-collar workers is an “actuarially sound and preferable” way to figure out how much employers should have to put into their pension plans
  • that the blue/white collar distinction is a better way to differentiate workers than income level; some critics (including Edwin Hustead, the source for the NYT article) contend that how much a person makes has more to do with their mortality than their type of job
  • that well-paid unionized employees (such as pilots or professional football players) should not be lumped into the blue-collar category.

>Gebhardtsbauer told PLANSPONSOR.com that the Academy has contacted Representatives Portman and Cardin with an offer to help lawmakers use the Academy’s research to effectively hash out the underlying pension policy issues. “I think those (Academy research) numbers can used to justify different mortality tables for blue collar groups compared to white collar groups,” Gebhardtsbauer said. “We’d love to help (lawmakers).”

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