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Endowments of the Ivies Investing in Hedge Funds: In a League of Their Own?

by Edgar Flores

  • 13 Jun 2017
  • HF

The Ivy League comprises eight universities in the Northeast US: Brown, Columbia, Cornell, Dartmouth, Harvard, Princeton, the University of Pennsylvania and Yale. As the universities themselves develop strong global reputations, they are also able to  build significant endowments. As at Q2 2017, ‘the Ivies’ held a combined $116bn in assets under management (AUM); this total constitutes 17% of the total AUM of endowment plans globally, despite the Ivies representing just 1% of the 597 endowment plans tracked on Preqin’s Hedge Fund Online database. 

 

In terms of allocations to hedge funds, the Ivies are all within the top 25 endowment plans globally, with a total of $26bn currently invested in the asset class. Furthermore, their average allocation to hedge funds (as a proportion of total assets) is 1.5x greater than the average for endowment plans globally (28% vs. 18% respectively). Among all endowment plans, Carnegie Endowment for International Peace invests the largest proportion of total assets in hedge funds, with 82% of its AUM allocated to the asset class. University of Texas Investment Management Company has the highest dollar allocation at $10.4bn. Among the Ivy League endowment plans, the highest allocation by percentage is held by Brown University Endowment Fund at 37%, while the lowest allocation is held by Harvard Management Company at 15%. However, despite this, the Harvard endowment plan has the most capital invested in hedge funds among the Ivies, at $5.4bn.

In the Preqin Investor Outlook: Alternative Assets, H1 2017, 66% of investors interviewed by Preqin at the start of 2017 stated that their hedge fund investments over 2016 had fallen short of expectations, with 47% issuing a redemption request over the course of the year. However, the Ivy League endowment plans have not experienced  the same trajectory; in fact, they have been increasing their allocations to hedge funds over recent years. Brown University Endowment Fund has increased its hedge fund allocation from 25% of total assets as at Q4 2013 to 37% as at Q2 2017.  Furthermore, both Yale University Endowment and Princeton University Investment Company (Princo) have increased their allocations by at least $2bn since the end of 2013.

However, not all Ivy League endowment plans are ramping up investments in the asset class. In early Q1 2017, it was reported that Harvard Management Company would end the operation of its internal hedge funds team by Q3 2017, as part of a move to halve its staff count and outsource management of most of its assets. Despite this news, there are promising signs from the other endowment plans, as two have, within the past 12 months, hired new CIOs, and Princo currently has plans to continue investing opportunistically in hedge funds within the next year. Despite the general dissatisfaction with hedge funds among investors, the Ivy League endowment plans have stuck with hedge fund investments, signalling their long-term confidence in the asset class.

 

 

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