The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

Articles By Topic

By Topic: Endowments

  • From Vol. 6 No.14 (Apr. 4, 2013)

    Why and How Do Corporate and Government Pension Plans, Endowments and Foundations Invest in Hedge Funds?

    A growing proportion of the capital flowing into hedge funds is coming from institutional investors.  Therefore, hedge fund managers looking to raise capital effectively must understand the financial condition, motivations and allocation preferences of different institutional players.  To help hedge fund managers develop and refine such an understanding, we have recently published a series of articles on institutional investor investment preferences, each focusing on a different category of investor.  The first article in the series focused on family offices.  See “Why and How Do Family Offices and Foundations Invest in Hedge Funds?,” The Hedge Fund Law Report, Vol. 6, No. 1 (Jan. 3, 2013).  The second article in the series focused on sovereign wealth funds.  See “Why and How Do Sovereign Wealth Funds Invest in Hedge Funds?,” The Hedge Fund Law Report, Vol. 6, No. 13 (Mar. 28, 2013).  This article, as the title implies, focuses on corporate and government pension plans, endowments and foundations.  See also “The Four P’s of Marketing by Hedge Fund Managers to Pension Plan Managers in the Post-Placement Agent Era: Philosophy, Process, People and Performance,” The Hedge Fund Law Report, Vol. 2, No. 45 (Nov. 11, 2009).

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  • From Vol. 5 No.48 (Dec. 20, 2012)

    State Street Report Describes an Evolution in the “Endowment Model” of Hedge Fund Investing

    State Street recently released a report gathering investors’ thoughts concerning their approach to investing in alternatives, and their opinions on different investment models, including the endowment model.  Based on analysis of the data collected, State Street found that asset owners are changing their approach to investing in light of lessons learned from the global financial crisis.  Investors indicated that they are using the endowment model differently than they had before the financial crisis.  Investors are also adopting new asset allocation tools and increasingly focusing on risk management in managing their portfolios.  The report also included a list of best practices suggested by State Street that could be useful for successful hedge fund investing.  This article summarizes the key takeaways from the report.

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  • From Vol. 4 No.36 (Oct. 13, 2011)

    Public Pension Funds and Endowments Increase Allocations to Hedge Funds, While Allocations from Family Offices Slide

    On September 27, 2011, investment management software and services provider PerTrac hosted a webinar entitled “Institutional Asset Allocation: The Latest Trends From Pensions, Family Offices and Endowments.”  Lois Peltz, of information service provider Infovest21, delivered the presentation, which was the second of a two-part series.  The presentation laid out the results of Infovest21’s recent study (Study) of where and how family office, public pension fund and endowment assets are being allocated.  See “Developments in Family Office Regulation: Part Three,” The Hedge Fund Law Report, Vol. 4, No. 23 (Jul. 8, 2011).  The purpose of the event was to keep hedge fund managers, among others, up to date on investing trends and provide insight into how institutional investors are making investment decisions.  See “Implications for Hedge Funds of a Potential Paradigm Shift in Pension Fund Allocation Strategies,” The Hedge Fund Law Report, Vol. 3, No. 16 (Apr. 23, 2010).  This article summarizes the salient ideas and investment trends discussed in the course of the webinar.

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  • From Vol. 3 No.36 (Sep. 17, 2010)

    Connecticut Attorney General Sues Chief Investment Officer of Wesleyan University and Hedge Funds with which CIO was Affiliated for Inappropriate Use of University Resources

    In a complaint filed in the Middlesex Superior Court in Connecticut on August 12, 2010, Connecticut Attorney General Richard Blumenthal accused Thomas Kannam, the former Chief Investment Officer (CIO) of Wesleyan University, along with two hedge fund management companies and one operating company with which Kannam was affiliated, of breach of fiduciary duty and other legal violations.  Specifically, Blumenthal alleged that Kannam violated his fiduciary duty to the University by knowingly causing University Endowment funds to be used for his own personal benefit or the benefit of the hedge fund managers and operating company with which he was affiliated, in contravention of his duty of loyalty to the University.  This article details the factual and legal allegations in Blumenthal’s complaint.  The complaint may have broader relevance within the hedge fund community because of the mobility between employment as an endowment CIO and principal at a hedge fund management company.  That is, for hedge fund managers looking to hire former endowment CIOs, it is important to understand what level of pre-employment affiliation is permissible.  Even for managers who are not looking to hire current or former endowment CIOs, but are merely looking to do business with them in their capacity as CIOs, the complaint helps demarcate the line between permissible and impermissible conduct.

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  • From Vol. 3 No.14 (Apr. 9, 2010)

    Lessons for Hedge Fund Managers on Liquidity, Allocations, Marketing and More from Yale’s 2009 Endowment Report

    Endowments were among the first institutional investors in hedge funds, and they remain among the most committed and sophisticated.  According to data provider Preqin, endowments account for approximately 14 percent of institutional investor assets in hedge funds, the third largest category after funds of funds and public pension funds.  The Yale University Endowment in particular, under the stewardship of Chief Investment Officer David Swensen, has been a leader among endowments with respect to hedge fund investing.  Yale made its first investment in hedge funds in July 1990, starting with a 15 percent target allocation to what it calls “absolute return” strategies, and in the last 10 years has generated average annual returns of 11.4 percent from hedge funds.  Many endowments have followed Yale’s lead into hedge funds, such that the average endowment’s allocation to hedge funds is now 22.5 percent of total assets; Yale’s target hedge fund allocation currently is 15 percent, down from 21 percent in fiscal 2008, though its current actual allocation is 24.3 percent.  In light of Yale’s pioneering role in hedge fund investing, its 2009 Endowment Report merits special attention from hedge fund managers, other endowments and other institutional investors.  For hedge fund managers looking to hone their marketing “pitch” to endowments, the Report offers unique insight into the thinking of a leading endowment on a variety of relevant topics.  For other endowments and other institutional investors, the Report describes a variety of best practices and approaches based on long experience.  See “Are University Endowments Likely to Insource Investment Management Functions Currently Outsourced to Hedge Fund Managers?,” The Hedge Fund Law Report, Vol. 2, No. 37 (Sep. 17, 2009).  Of particular note, the Report discusses the three-part framework used by Yale to understand and approach liquidity.  Following the frequent use of liquidity restriction measures during the credit crisis, liquidity has become a paramount concern among institutional investors.  But there’s more to liquidity than merely the right to get your money back.  The liquidity framework described in the Yale Report is subtle and, to a degree, counterintuitive; and it’s a framework of which hedge fund managers need to be aware when marketing to endowments.  To that end, this article describes that framework in detail and, more importantly, discusses 11 ways in which hedge fund managers may use an understanding of that framework to enhance the liquidity they offer to endowments.  This article also details other matters discussed in the Report that are relevant to hedge funds, including: sources of endowment funds; uses of endowment funds; asset allocation by Yale and other endowments; Yale’s investment goals generally; Yale’s investment goals specifically with respect to hedge fund allocations; Yale’s views with respect to investments in private funds affiliated with banks; its use of benchmarks for measuring the performance of absolute return strategies; and its focus on green investing and sustainable development.

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  • From Vol. 2 No.38 (Sep. 24, 2009)

    When “Socially Conscious” Hedge Funds Are Not

    In a guest Op-Ed, Philip McBride Johnson, the former Chairman of the CFTC, now Of Counsel at Skadden, Arps, Slate, Meagher & Flom LLP, takes university endowments to task for not making a greater contribution to student tuition when they can afford to do so without any material imposition on other spending priorities.  He also criticizes hedge funds for the losses of endowment funds that, had priorities been different, could have been spent on student aid.

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  • From Vol. 2 No.37 (Sep. 17, 2009)

    Are University Endowments Likely to Insource Investment Management Functions Currently Outsourced to Hedge Fund Managers?

    In the past year, the values of many university endowments have declined by record amounts.  The negative returns have forced some schools to freeze faculty salaries and slow campus expansion and other improvement plans.  Now, in the wake of the economic downturn, university endowments are picking up the pieces and reexamining their investment strategies.  Harvard Management Co. (HMC), the company that manages Harvard University’s endowment, has announced that it may increase the amount of assets it manages internally and that such a move may involve selling off some holdings in hedge funds.  However, other university endowments are not necessarily following in HMC’s footsteps and are expected to continue outsourcing their investment management processes.  This article examines trends in endowment investment management, and in particular discusses what university endowments are; the history of investments by university endowments in hedge funds (including the story of David Swensen’s successful foray into alternatives); the rationale for insourcing by university endowments of investment management; the pros and cons of insourcing versus outsourcing; and various alternative methods for university endowments to access hedge fund strategies and talent in a manner consistent with the various concerns that, at least in HMC’s case, have led to insourcing.

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