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University endowments with larger hedge fund investments generate higher returns, says MFA report

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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.

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.

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