The Benefits of Hedge Fund Investing

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Hedge funds originated as a vehicle to help diversify investment portfolios, manage risk and produce reliable returns over time. While hedge funds’ investor base has evolved over the years – from individuals to institutions such as pensions, universities and foundations – their core goals have not.

This presentation provides a brief overview of the investment approach hedge funds offer their partners.

It also illustrates the many ways hedge fund investments benefit communities and individuals.

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

Published in: Economy & Finance, Business
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The Benefits of Hedge Fund Investing

  1. 1. THE BENEFITS OF HEDGE FUND INVESTING UNDERSTANDING WHY INVESTORS PARTNER WITH HEDGE FUNDS AND THE BENEFITS THEY PROVIDE
  2. 2. 2 Benefits of Hedge Fund Investing Contents Table of Contents: Benefits of Hedge Fund Investing 3 Risk Management 4 Portfolio Diversification 6 Reliable Returns 7 Who Invests? 8 Pensions 9 Universities & Colleges 10 Foundations & Non-profits 11 References 12 Overview Hedge funds originated as a vehicle to help diversify investment portfolios, manage risk and produce reliable returns over time. While hedge funds’ investor base has evolved over the years – from individuals to institutions such as pensions, universities and foundations – their core goals have not. This presentation provides a brief overview of the investment approach hedge funds offer their partners. It also illustrates the many ways hedge fund investments benefit communities and individuals.
  3. 3. 3 Benefits of Hedge Fund Investing Benefits of hedge fund investing include: Through the years, hedge funds have evolved from an investment vehicle for wealthy individuals into a tool used by institutional investors – state and corporate pensions, university endowments, non-profit foundations – to manage investment risk, diversify portfolios and produce reliable returns over time. Portfolio Diversification Risk Management Reliable Returns An investment in Hedge Funds
  4. 4. 4 Benefits of Hedge Fund Investing Risk Management Hedge funds were developed to help investors minimize investment risk. Their market- neutral, or balanced, approach to investing helps seek out positive returns by investing in varied instruments over long- and short-term periods. This positions hedge funds as nimble investors in the marketplace, able to anticipate – and avoid – undue risk for their investment partners. Hedge funds continue to strengthen their efforts toward risk management, dedicating specialized, independent teams to the practice. A recent industry study* found: •79% of firms separate their risk manager and fund manager functions to ensure independent oversight. •84% of hedge funds use off the shelf risk analytics. •Reporting to investors is an excellent method of mitigating concerns. Hedge Funds project that five years from now 41% of investor reporting, up from 12% in 2007, will be published daily or weekly. *Source: BNY Mellon / HedgeMark study
  5. 5. 5 Benefits of Hedge Fund Investing Risk Management As a result, hedge funds help protect investors from market volatility and downturns better than other investment benchmarks.
  6. 6. 6 Benefits of Hedge Fund Investing Portfolio Diversification •Investors can no longer rely on simple strategies weighted heavily toward fixed income assets to produce reliable returns and meet financial obligations. •In todays global marketplace, investors need comprehensive, nimble, diverse investment portfolios that provide opportunities to maximize return while minimizing risk. •Portfolio diversification provides an additional layer of risk management preventing investors from being overly concentrated in a specific type of asset. Why Portfolio diversification?
  7. 7. 7 Benefits of Hedge Fund Investing Reliable Returns The overarching goal of hedge funds is to provide investors with reliable returns over time. From 1987-2011, hedge funds outperformed the S&P 500 and Dow Jones Industrial Average and gave better protection against risk than other indices from 1987-2011, according to data by the Hennessee Group, a research provider.
  8. 8. 8 Benefits of Hedge Fund Investing Who Invests? 66% of hedge fund assets are held by institutional investors. These institutional investors include: 1.Public employee pension plans 2.Corporate employee pension plans 3.University and college endowments 4.Foundations and non-Profit Organizations *Source: 2014 Preqin Global Hedge Fund Report
  9. 9. 9 Benefits of Hedge Fund Investing Public and State Pensions Invest in Hedge Funds Public and state employee retirement plans increasingly partner with hedge funds to help provide economic security and retirement benefits to millions of workers and retirees around the world. The partnership between hedge funds and pension plans has grown in recent years and studies indicate pensions are looking to increase their allocations to hedge funds in the coming years as well. A recent study estimated that a modest allocation to hedge funds could improve returns of U.S. pension plans by approximately $13.67 billion annually. Public and State Pension plans investing in hedge funds include: *Source: The Changing Role of Hedge Funds in the Global Economy
  10. 10. 10 Benefits of Hedge Fund Investing Corporate Pensions Invest in Hedge Funds Corporate Pension plans investing in hedge funds include: Corporate employee retirement plans increasingly partner with hedge funds to help provide economic security and retirement benefits to millions of workers and retirees around the world. The partnership between hedge funds and pension plans has grown in recent years and studies indicate pension are looking to increase their allocations to hedge funds in the coming years as well.
  11. 11. 11 Benefits of Hedge Fund Investing University & College Endowments Invest in Hedge Funds College and university endowments were among the first institutions to partner with hedge funds and this relationship has strengthened in recent years. Through these investments, schools help expand access to quality higher education through scholarships, funding for research grants and salaries for professors, as well as capital for improvements to campus facilities. 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
  12. 12. 12 Benefits of Hedge Fund Investing Foundations and Non-profit organizations Invest in Hedge Funds Foundations organizations around the world partner with hedge funds to help establish the financial resources needed to fund projects in local communities. Through these partnerships, hedge funds help create opportunities for organizations to engage in economic, health and education-related development projects benefitting local residents. Examples of the types of work hedge funds help enable through the returns they help to generate for foundations: The Juvenile Diabetes Research Foundation is the prominent global organization focused on researching type 1 diabetes. The goal of JDRF is to improve the lives of children, adolescents and adults worldwide who are affected by type 1 diabetes. The Ford Foundation believes everyone all over the world should have a voice in the decisions that affect them and should have the opportunity to reach their full potential. To reach these goals the Ford Foundation promotes collaboration among the nonprofit, government and business sectors. RWJF has a very clear mission: improve health care for all Americans. By doing this, they hope to help society to transform itself for the better. The triangle community foundation is a nonprofit organization that manages $145 million in funds. From these funds they give grants to nonprofit organizations and community organizations all over the region in an effort to improve the problems facing the community.
  13. 13. 13 Resources Hedge Fund Investments Benefiting Local Communities Across the U.S. Click here for an interactive map detailing how hedge funds benefit communities across the U.S. on a state by state basis. Click here to download the investor map on your iPad.
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