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Hedge Funds - Endowments at your school


Introduction


Note: The guide below was built by one of Roosevelt's partners on our Financialization report, Hedge Clippers. 

The typical university endowment has at least 20 percent of its fund invested in hedge funds—largely unregulated, high-cost investment vehicles run by the ultra-wealthy. Hedge funds have done a great deal to endanger endowments and weaken higher education in the United States: they charge astronomically high fees, while delivering poor returns, and engaging in dangerous practices that increase the personal wealth of hedge fund managers while making college more expensive and four-year degrees less attainable for all but the very rich.

A hedge fund is a lightly-regulated investment pool that is usually defined by its exemption from registration under two of the major investor protection laws—the Securities Act of 1933 and the Investment Act of 1940.1 Hedge funds are exempt from these regulations because they are supposed to be investment vehicles for “sophisticated investors” only, e.g. institutional investors (pension plans, endowments and foundations) and the very wealthy.

Hedge funds employ a number of strategies to make money, including using complex algorithms to take advantage of minute gaps in the market, betting against or in favor of certain stocks, and “event-driven” strategies such as betting against currencies. In essence, a hedge fund is defined less by the type of investment it makes and more by its lack of regulation and the high fees it charges.

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Why

  • Over $100 billion of university endowment funds currently invested in hedge funds
  • In 2015, universities paid an estimated $2.5 billion in hedge fund fees
  • From 2009-2015, universities paid an estimated $16.7 billion in hedge fund fees
  • More than 50% of leadership positions on research university boards are held by the finance sector
  • Finance sector board seats more than doubled for research Us and liberal arts colleges over the last 25 years

How to do this at my school

How is your university impacted by hedge funds? The following list provides questions to ask to begin exposing the ties between hedge funds and your institution. (Sources to consult to begin your search are noted in parentheses). 

How have hedge fund investments impacted my school’s endowment?

  • How much does my university have invested in hedge funds? (Annual reports)
  • What percentage of the total endowment does this represent?
  • Which hedge funds is my university invested in? (Annual reports)
  • Have these hedge funds performed well? (Google search for specific hedge fund)
  • Has my university received large donations from hedge fund managers? (Google search; annual reports)
  • Do hedge fund managers serve on the board of trustees/regents? (School website)

Resources

Please reference the Hedge Funds and Endowments tool kit attached in the Files section of this site as the primary resource for finding Hedge fund involvement at your school. 

Example

  • Case Study: Michigan State University: 
  • 46% of endowment is in hedge funds (over $1 billion)
  • Paid an estimated $25 million in hedge fund fees in 2015 alone
  • Among its hedge fund investments: Paul Singer, Elliott Management, Blackrock - private prisons, and at least 5 hedge funds actively destroying Puerto Rico