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U.S. Colleges May Shift From Hedge Funds, Survey Says

Date: Wednesday, December 10, 2008
Author: Saijel Kishan, Bloomberg.com

U.S. universities might reduce their investments in hedge funds to meet commitments to private-equity managers, according to a survey.

Sixty of the largest U.S. endowments put $23 billion in hedge funds in the past two years, the London-based research company InvestHedge said in an e-mailed statement today. The top university endowments, including those of Harvard University and the University of Texas, have $63 billion in hedge funds.

“The future growth of these portfolios is obviously in jeopardy given the current market crisis,” InvestHedge said. Hedge funds might be put “on the backburner” when endowments have to fulfill previous obligations to private-equity managers, the company said.

Hedge funds, private, largely unregulated pools of capital, lost an average of 17.7 percent this year through November, according to Chicago-based Hedge Fund Research Inc., while the Standard & Poor’s 500 Index dropped 39 percent. Harvard’s endowment decreased 22 percent, or $8 billion, in the first four months of fiscal 2009, putting it on course for its worst performance in at least four decades.

InvestHedge said the top 60 U.S. endowments manage $290 billion in donated money, the proceeds of which are used to fund school operations. Fifteen schools had hedge-fund investments exceeding $1 billion, compared with 10 in 2006. About 71 percent of the endowments invest directly in hedge funds rather than through funds of funds that allocate money on behalf of clients, InvestHedge said.

Harvard Losses

Hedge-fund industry assets shrank by 9 percent to $1.56 trillion worldwide in October, the lowest level in two years, after investors withdrew cash and stock markets declined, according to Hedge Fund Research.

Harvard President Drew Faust has said the Cambridge, Massachusetts, school is making budget plans based on a possible 30 percent investment loss for the fiscal year ending in June. The university had $36.9 billion in assets on July 1 after gaining 8.6 percent in fiscal 2008.

Harvard’s Faculty of Arts and Sciences has imposed a hiring freeze and will halt future salary increases for professors and non-union staff.

To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net