Opalesque Industry Update - In its just-released white paper, "Endowment Interest and Allocation to Hedge Funds/Funds of Funds," Infovest21 examines endowments' use of hedge funds from both a qualitative and quantitative viewpoint.
The white paper explores endowment chief investment officers' and consultants' views on the role of hedge funds in the portfolio, hedge fund performance, strategy preference, types of managers preferred, changes in endowment asset allocation, fees, risk and risk management, and the OCIO trend.
Lois Peltz, president of Infovest21 and author of the report, said: "The percentage endowments allocate to hedge funds hasn't changed much but their role in the portfolio has matured since 2008. Hedge funds are being used in the endowment portfolio for different purposes."
While consultants may place hedge funds in different buckets e.g. return enhancement, growth or risk reducing, many endowments and consultants perceive hedge funds as risk reducers.
Other highlights of the report include:
- Hedge funds are increasingly viewed as a vehicle rather than an asset class.
- Endowments' allocation to hedge funds has remained relatively stable. Many endowment CIOs are not currently looking to increase allocations due in large part to uncertainty over hedge fund performance and strong equity markets.
- Consultants see a shift away from multi-strategy funds of funds. Global macro and long/short equity are strategies cited most often. There has also been recent interest in fixed income substitutes given concerns about fears about rising interest rates.
- More endowments are considering the outsourced chief investment officer model for some version of investment management, not necessarily the entire operation. The OCIO model is a way for some endowments to solve a resource problem.
Infovest21, founded in 2000, is an information provider to hedge fund investors, managers, funds of funds and service providers. Led by Lois Peltz, president, the firm provides news, research, surveys, white papers as well as organizes seminars and conferences. The firm's focus is on hedge funds, funds of funds and '40 Act funds.