Public pensions and college endowments are some of the biggest investors in hedge funds, investment vehicles that have made their managers some of the wealthiest people in the world.Middlemen funnel this public money into the hedge funds, as do funds of funds. All of them collect fees.Pensions could have been better off investing in cash than in hedge funds, largely because of the high fees investors pay hedge fund managers. Hedge funds haven’t met the expectations for endowments over the past several years, either.
In the summer of 2015, Penn State’s endowment invested $50 million in Pershing Square Capital, a high-profile hedge fund run by New York City billionaire Bill Ackman.
The endowment, one of the largest held by a university, invested as the fund was coming off years of stellar performance. Two years later, the fund has had a reversal of fortune. The Pershing Square International fund reported a loss of 16.6% in 2015 and a loss of 10.2% last year. The fund gained 1.83% through mid-June of this year.
At those rates, a $50 million investment in 2015 would be worth about $38 million now. That doesn’t include annual fees, of about 1.5% of the assets (about $750,000 on the initial amount), paid to the hedge fund.
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