MFA Report Finds Endowments with Larger Hedge Fund Investments Generate Higher Returns

 

July 21, 2022

Noah Theran: “This research confirms that hedge funds are an essential component in the portfolios of educational endowments across the country.”

WASHINGTON, DC – A new report released today by Managed Funds Association highlights the important role of hedge fund investments in the overall portfolio of educational endowments. The report, titled “Allocations and Endowment Returns,” shows that university endowments that invest more in hedge funds as part of a long-term strategy achieve higher returns.

“This research confirms that hedge funds are an essential component in the portfolios of educational endowments across the country,” said MFA Head of Global External Affairs Noah Theran. “Endowments that invest in hedge funds perform better over the long term. These investments in ensure endowments are better able to fund scholarships, support research projects, and improve educational facilities–benefiting students and communities.”

Findings from the report show that an average university with a $5 billion endowment and a 10% allocation to hedge funds earns nearly $240 million more over five years than an endowment with no allocation to hedge funds.

Actively managed portfolios, like those by hedge fund managers, provide an essential tool for investors seeking moderate exposure to market swings. Hedge funds tend to provide returns uncorrelated with market returns and institutional investors—endowments in particular—use hedge funds to protect their assets from market downturns and to reduce the volatility of their returns.

The analysis of the report is based on Pensions and Investments (P&I) investment returns data from 2016 to 2021, and data on endowment’s share of their portfolio devoted to hedge funds at the beginning of this period.

The full report can be found here.


About the Global Hedge Fund and Alternative Asset Management Industry

The global hedge fund and alternative asset management industry, including hedge funds, credit, managed futures, and hybrid funds that invest in private companies, has assets under management of $4.3 trillion (Q2 2021). The industry serves thousands of public and private pension funds, charitable endowments, foundations, sovereign governments, and other global institutional investors by providing portfolio diversification and risk-adjusted returns to help meet their funding obligations and return targets.

About the Managed Funds Association

Managed Funds Association (MFA) represents the global hedge fund and alternative asset management industry and its investors by advocating for regulatory, tax, and other public policies that foster efficient, transparent, and fair capital markets. MFA’s more than 150 member firms collectively manage nearly $2.6 trillion across a diverse group of investment strategies. Member firms help pension plans, university endowments, charitable foundations, and other institutional investors to diversify their investments, manage risk, and generate attractive returns over time. MFA has a global presence and is active in Washington, London, Brussels, and Asia. www.managedfunds.org