Why do Endowments use hedge funds as part of their allocation

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Why do Endowments use hedge funds as part of their allocation A university endowment as one focal point of its program activities as it seeks to explore the relationship between capital markets and society; university endowments serve as the main nexus where the engines of financial markets and higher education intersect. Universities use endowments to pay for new buildings, salaries and offer scholarships and there's no denying that university endowments are exciting places for managers to be. Endowments are still subject to relatively few regulations apart from a rule in the US forcing most of them to dispense at least 5% of their corpus annually. Wealthy universities have been pressured by U.S. lawmakers to spend more of their money every year to make tuition, room and board more affordable for students. This encourages universities to invest their endowment by taking advantage of asset allocation. U.S. endowments with the largest allocations to alternative investments have the best overall returns. Endowments with higher allocations to alternatives had higher excess returns over the S&P 500 than those with lower allocations. What's more, endowments with higher allocations to alternatives outperformed the top tier of corporate pension funds The most successful endowments are the ones that are the most diversified, with international investments bringing in the largest return. A good endowment has always had a diversified endowment, invested in part overseas. Endowments highly diversified consistently outperformed the overall average by more than three percentage points per year and outperformed other. For most endowments, strong stock markets helped boost returns in 2007, noting that hedge fund did their part to boost returns. Hedge fund investing has become more main-stream among endowments, partly because investment committee members already are familiar

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