A recent article from The Nation claims that university endowments are being heavily invested in hedge funds. This “intersection between higher education and high finance” means that university money is torn between paying hedge fund managers and being spent on actual education resources. This criticism was first brought up regarding Harvard investing 15% of its $38 billion endowment in hedge funds. In reality, public universities are looking to hedge funds as well now that state aid is decreasing.
Hedge funds utilize high risk methods for large returns, and often operate in convoluted overseas structures to avoid taxes. Investing endowments in risky hedge funds rather than investing in students is a significantly less stable and responsible allocation of funds. Not to mention the already tax-exempt public universities dodging taxes by proxy through their chosen hedge funds. Tax exemption is also a privilege extended to schools with the highest endowments, so it’s an inequality issue as well.
Aggressively investing endowments in hedge funds in hopes of big wins doesn’t really represent the best interests of students and puts their education at unnecessary risk. Perhaps the next campaign for divestment should target the hedge fund managers that might be getting more of your university’s endowment than you are.
Morningstar has a chart that links mutual fund expenses to performance, and the results aren’t promising. http://www.morningstar.com/cover/videocenter.aspx?id=691300