Hedge fund risk overstated by Solvency II proposals

Solvency II, the insurance industry’s Basel, could unfairly hinder hedge fund investment by insurance and pensions companies.

According to Edhec, a French business school, the plans to subject hedge fund investments to a higher capital charge than for other equity exposures under Solvency II fail to match actual risk levels.

“Within the equity risk sub-module of the third Quantitative Impact Study undertaken by the Committee of European Insurance and Occupational Pension Supervisors, a preamble to the Solvency II supervisory standard, all alternative investments are subject to a capital charge of 45%, [substantially]