RT Journal Article SR Electronic T1 Solvency II: Regulation Change and Hedge
Fund Evolution JF The Journal of Alternative Investments FD Institutional Investor Journals SP 86 OP 97 DO 10.3905/jai.2012.15.2.086 VO 15 IS 2 A1 Mathieu Vaissié YR 2012 UL https://pm-research.com/content/15/2/86.abstract AB The growing complexity of financial markets makes it increasingly challenging for institutional investors to manage their asset–liability profile efficiently. This is especially true for financial institutions that are facing their own changes in the regulatory framework and in accounting rules. For example, although the benefits of hedge fund strategies in asset–liability management have been documented in the academic literature, the integration of these strategies into the global asset allocation of European insurance companies may be jeopardized by recent developments on the regulatory front. The Solvency II Directive is an EU directive that codifies and harmonizes EU insurance regulation. It defines the target level of capital that an EU insurance company should hold so that it can absorb significant unforeseen losses and give assurance to policyholders that payments will be made as they fall due. The Solvency II Directive is due to come into force on January 1, 2014. The author argues in this article that a solvency capital requirement of 49% does not reflect the risks inherent in hedge fund strategies. He finds that a capital charge of no more than 25% is appropriate for a diversified hedge fund allocation and concludes that hedge fund investing is appealing from both a risk-adjusted performance standpoint and a capital efficiency perspective.TOPICS: Real assets/alternative investments/private equity, developed, legal/regulatory/public policy, risk management