Hedge Fund Investing: A Practical Approach to Understanding Investor Motivation, Manager Profits, and Fund Performance

Endowments

University endowments are dedicated pools of capital endowed or donated to specific or groups of universities to support the education needs of the university. University endowments have been some of the most prolific investors in the alternatives sector and in hedge funds. Universities often rely on the expertise of their alumni and faculty to set their investment mandate and strategies. They are able to seize on the positive portfolio benefits of hedge funds and act quickly to make decisions. They are also long-term investors. As a result, the top university programs, such as Harvard and Yale, have allocated more than 40 percent to alternatives, and in some cases, more than 50 percent of the plan is in this sector. Hedge funds most often are a significant part of the alternative assets and may range from 5 percent to 35 percent of total assets, based on the university, the size of the endowment, and the liquidity needed to fund projects for the school. Figure 2.4 shows the asset allocation in place among some of the largest universities in the United States, based on a report prepared each year by the National Association of College and University Business Officers (NACUBO) and the Commonfund Institute.

Figure 2.4 University Endowment Asset Allocation, 2011

Source: 2011 NACUBO-Common Fund Study of Endowments.

Over the past 10 years, university endowments have had significant ...