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May 22, 2006 at 08:00 PM
GREENWICH, Conn. (HedgeWorld.com)–The latest Greenwich Associates research highlights what pension fund trustees could learn from endowment funds that paved the way for institutional hedge fund investing.
These researchers said pension funds won’t remain satisfied with their existing fund of hedge fund portfolios for long. They will likely begin to move more into single-strategy and multi-strategy portfolios offered by single managers in the near future.
Endowment funds were undoubtedly at the forefront of hedge fund investing in the United States. Much of that effort began at Harvard University’s endowment, which has seen its staff launch hedge fund firms of their own in recent years. Smaller colleges and universities followed Harvard’s lead and invested heavily in hedge funds, along with endowments at the University of North Carolina-Chapel Hill, Smith College and others.
These endowments were the first institutional investment wave, and pension funds are going to dominate the second stage of the movement in the coming years, according to the Greenwich Associates researchers.
“Luckily, there is an invaluable source to which they can turn for guidance in this process–the endowment example,” said Rodger Smith, a Greenwich Associates consultant, in a statement.
Today, of the $113 billion in hedge fund investments among U.S. institutional investors, $69 billion belongs to endowments, whereas $40 billion comes from U.S. corporate and public pension plans combined.
While the average U.S. pension fund sets aside less than 1% of its assets for hedge fund investments, endowments have generously invested 12.3% of their portfolios on average in order to gain the true benefits of diversification, according to Greenwich officials.
As endowments matured they too adopted funds of funds, according to Greenwich Associates. But as those portfolios grew, more endowments started to diversify their hedge fund holdings and moved toward direct single-strategy investing.
