UK – The chief executive of HSBC’s fund of hedge fund business Republic says pension consultants have been late in realising the benefits of hedge funds.

The comments follow the unit’s analysis, released last week, which said funds of hedge funds have an “interesting return profile” for pension funds and that there are “very real” diversification benefits.

Consultants were a “tad slow to the party”, said Paul Dunning, CEO of HSBC Republic investments in an interview. Consultants, who were “paid to be risk averse” hadn’t been “particularly proactive” he said.

He added: “Clients have pushed more for hedge funds faster than consultants were hoping they would.” But he said consultants now had “some decent teams” in the hedge fund area.

Dunning expressed scepticism over the European Union’s proposed European hedge fund passport. “I don’t know how it’s going to play out.” He cited the 15-year gestation period for UCITS III directive on investment funds. “Regulators see headlines,” he said.

Dunning said the unit was focusing on institutional cash. “We feel that we have the right process and the right skills to make a big impact in the institutional world,” he said.

“We’re not trying to do institutional marketing,” Dunning added, saying it can draw on the resources of HSBC Asset Management and HSBC’s consulting arm HSBC Consultants and Actuaries Ltd.

He also commented on the recent announcement by index firm FTSE that it plans to launch a hedge fund product. He argued the index comprised a “sub-optimal selection of manager”. “It will be interesting to see if they perform over time.” Hedge fund indices in general were not transparent or able to be replicated, he argued.

A FTSE spokeswoman declined comment, saying the constituents of the index would be announced in April.

Dunning joined Republic in 1995. He was formerly chief operating officer at Goldman Sachs Asset Management in London.

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