Hedge Fund Investments of US Endowments and Foundations – How did They Do That?

By Simon Kerr, Hedge Fund Insight

The Wilshire Trust Universe Comparison Service® (Wilshire TUCS) tracks the performance and allocation of institutional assets in the United States of America and includes nearly 1,570 plans representing in excess of $2.75 trillion in assets. The full universe includes public pension plans, Taft-Hartley plans, master trusts and corporate DB pension plans. Wilshire Analytics has just spat out a report showing how the endowments and foundations got on in 2012.

The median return in 2012 on invested assets across all foundations and endowments was 11.89%. What is more interesting are the returns from alternatives last year – a median return of 7.2% for hedge funds for the year; from private equity, 5.9%; and from other alternative investments, 9.1%.

For comparison the HFRI indices are appropriate, as they are weighted and, importantly for institutional investor purposes, reflect the universe of managers that large investors can actually access.  Last year the HFRI Fund Weighted Composite Index was up 6.38%% and the HFRI Fund of Funds Composite Index was up 4.79%.

US endowments and foundations collectively have a far longer experience of investing in hedge funds than US pension  plans, either public or corporate, as the universe includes the likes of the Harvard Endowment.  All that know-how seems to have been applied by endowments and foundations as the hedge fund investments of the median plan comfortably beat specialist fund of funds managers in aggregate, and the typical hedge fund, as captured by the HFRI Fund Weighted Composite Index. It has to be asked: how did they do that?