Wednesday, 15 August 2012

And How Have The Internal Processes Developed At The Endowment To Invest In Hedge Funds?

One of the best things about the flows into the hedge fund industry coming from American investing institutions is that a good proportion of them are from public bodies. Consequently there is very good transparency about the activities in the hedge fund sector of state pension plans, for example.

Through the annual NACUBO study it is feasible to track quantitative information such as allocations to and returns from hedge funds in aggregate across American college endowments.  There can sometimes be good qualitative information about the hedge fund investment programs of college endowments because of the requirement to be publicly accountable. So it is that we can get an insight into the Absolute Return Strategies process at the endowment of the University of California - through the availability of Board papers from the Regents Office.

For a Board Meeting in February this year the hedge fund consultants to the Regents, Albourne Partners, were asked to prepare a memo giving their view of the Manager Selection processes employed in the construction of the UC Absolute Return portfolio, and the competence of the UC Absolute Return Investment Staff. What follows is a lightly edited version of the memo.

The Memo to the Board shows how the investment process for investing in hedge funds evolves at an investing institution. It also gives a real world example of the impact of constraints put on an investment mandate. The limitations of manager size and desired liquidity (ability to deal in the funds) are cited.  The Memo reflects the move away from large multi-strategy managers to try to allocate to emerging managers. And manager fees have been negotiated.

To read the rest of the story click here.

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