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HEDGE FUNDS AND PENSIONS
Hedge Funds and Pensions
Contents
Overview

Table of Contents:

Hedge funds originated as an investment vehicle to help
di...
Hedge Funds and Pensions
Overview

Hedge funds’ investor base has evolved significantly
over the years, with 66% of assets...
Hedge Funds and Pensions
Why Institutions Invest with Hedge Funds
Sample Corporate Pension Asset Allocation Table:
Pension...
Hedge Funds and Pensions
Public and State Pensions Invest in Hedge Funds
Public and state employee pension plans offer ret...
Hedge Funds and Pensions
Public Pensions Invest in Hedge Funds
Hedge funds’ investor base in the U.S. at the
state and pub...
Hedge Funds and Pensions
Corporate Pensions Invest in Hedge Funds
Examples of Corporate Pension plans investing in hedge f...
Hedge Funds and Pensions
Corporate Pensions Invest in Hedge Funds
The partnership between hedge funds and corporate pensio...
Hedge Funds and Pensions
University & College Endowments Invest in Hedge Funds
University and college endowments
were amon...
Who Invests in Hedge Funds?
Foundations and Non-Profit Organizations Invest in Hedge Funds
Non-profit foundations and char...
Hedge Funds and Pensions
Summary

The partnership between hedge funds and
pensions continues to grow. Pension funds are
se...
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Hedge Funds and Pensions

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Hedge Funds and Pensions explains the growing connection between pension investments and hedge funds – examining the many reasons why public and private pension plans invest with hedge funds, including portfolio diversification, risk management, and reliable returns. And, with demographic challenges, many pensions face growing hurdles to meeting their financial obligation.

This educational presentation features data from industry provider Preqin outlining the growing relationship between pensions and hedge funds. Learn more about why pensions invest with hedge funds and how endowments, foundations, and other non-profit organizations utilize hedge funds to manage their portfolios.

Learn more about the global hedge fund industry at: www.hedgefundfundamentals.com.

Published in: Economy & Finance, Business
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Transcript of "Hedge Funds and Pensions"

  1. 1. HEDGE FUNDS AND PENSIONS
  2. 2. Hedge Funds and Pensions Contents Overview Table of Contents: Hedge funds originated as an investment vehicle to help diversify portfolios, manage risk, and produce reliable returns over time. While hedge funds’ investor base has evolved though the years – from individuals to institutions such as pension plans, universities, and foundations – their core goals have not. Overview 3 Why Institutions Invest with Hedge Funds 4 • Public and State Pension Plans 5 Institutions face mounting challenges toward meeting their financial obligations. Pension plans, in particular, face demographic challenges resulting in a funding shortfall. • Corporate Pension Plans 7 • University Endowments 9 • Foundations As a result, pension plans have shifted investment strategies in recent years to alternative investments including hedge funds - which have helped place institutions on firmer ground over the long-term. This presentation details the growing partnerships between hedge funds and public and corporate pension plans. 10 2
  3. 3. Hedge Funds and Pensions Overview Hedge funds’ investor base has evolved significantly over the years, with 66% of assets under management currently coming from institutional investors such as pensions, endowments, and foundations. Many institutions are currently working to cope with major demographic and fiscal challenges, including funding shortfalls, which impact corporate and public pensions’ abilities to fulfill their funding obligations. As a result, institutions are increasingly seeking ways to diversify their investment portfolios to produce reliable returns. *Source: 2014 Preqin Global Hedge Fund Report, January 2014 FACT: 66% of hedge fund assets are held by institutional investors. 3
  4. 4. Hedge Funds and Pensions Why Institutions Invest with Hedge Funds Sample Corporate Pension Asset Allocation Table: Pension funds have realized that a simple mix of stocks and bonds will no longer provide the returns required to meet their obligations to pensioners. This reality has produced an industry evolution that has led to more pensions investing in allocations and thereby growing the universe of individuals who benefit from hedge fund investments. 4
  5. 5. Hedge Funds and Pensions Public and State Pensions Invest in Hedge Funds Public and state employee pension plans offer retirement security for millions of workers, retirees, and their families nationwide. These pension plans have increasingly partnered with hedge funds to help diversify their investments and help to provide economic security to their beneficiaries. A recent study estimated that a modest allocation to hedge funds could improve returns of U.S. public pension plans by approximately $13.67 billion annually.* *Source: The Changing Role of Hedge Funds in the Global Economy, Everett Ehrlich, pp. 1 (September, 2011) 5
  6. 6. Hedge Funds and Pensions Public Pensions Invest in Hedge Funds Hedge funds’ investor base in the U.S. at the state and public plan level is diverse. Investors in hedge funds range from unions such as AFL-CIO to local retirement plans in Louisiana to teachers in Illinois. Examples of public pension plans investing in hedge funds include: Public pension funds are one of the most prominent groups of institutional investors allocating investments to hedge funds. Public pensions currently represent over 22% of all institutional capital invested in hedge funds. * The number of public pension funds investing in hedge funds in the U.S. alone has increased significantly over the past five years from 196 known to be allocating to hedge funds in 2007 to approximately 377 today. * *Source: 2014 Preqin Global Hedge Fund Report, January 2014 6
  7. 7. Hedge Funds and Pensions Corporate Pensions Invest in Hedge Funds Examples of Corporate Pension plans investing in hedge funds include: Many of the largest employers in the U.S. view hedge funds as an essential tool in their investment toolbox in their efforts to provide reliable, risk adjusted returns that enable their plans to pay the retirement benefits to millions of Americans. 7
  8. 8. Hedge Funds and Pensions Corporate Pensions Invest in Hedge Funds The partnership between hedge funds and corporate pension plans has continued to expand in recent years. Studies indicate corporate plans are looking to increase their allocations to hedge funds in the coming years as well. According to the 2014 Preqin Global Hedge Fund Report, nearly 19% of institutional investor capital in hedge funds is currently held by private sector pension funds. Corporate pension plans investing in hedge funds include: *Source: 2014 Preqin Global Hedge Fund Report, January 2014 8
  9. 9. Hedge Funds and Pensions University & College Endowments Invest in Hedge Funds University and college endowments were among the first institutions to partner with hedge funds in the early 1990’s, and this relationship has strengthened in recent years. A recent study estimated that a modest allocation to hedge funds could improve returns of U.S. college and university endowments by approximately $1.73 billion annually.* Endowments investing in hedge funds include: *Source: The Changing Role of Hedge Funds in the Global Economy, Everett Ehrlich, pp. 1 (September, 2011) 9
  10. 10. Who Invests in Hedge Funds? Foundations and Non-Profit Organizations Invest in Hedge Funds Non-profit foundations and charitable organizations around the world partner with hedge funds to help establish the financial resources needed to fund critical projects in local communities. For example, The Nobel Foundation recently announced plans to invest more money in hedge funds to boost returns to restore the award to its previous size after having to reduce its cash prize by 20% in 2012. Here are additional, specific examples of types of Foundations that have benefitted from their investment in the hedge fund community: Source: Nobel Prize to Get Hedge Fund Boost After Awards Sink 20%, Bloomberg News, December 2012. 10
  11. 11. Hedge Funds and Pensions Summary The partnership between hedge funds and pensions continues to grow. Pension funds are seeking reliable returns and diversified portfolios, with many plans increasing existing allocations with hedge funds. These plans use a variety of asset allocation techniques and most call for a significant allocation to hedge funds and other alternative investment options over the next few years. Hedge funds are not a silver bullet for the challenges facing public pensions, but they are increasingly part of a comprehensive and responsible approach toward meeting financial obligations. 11
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