Hedge funds, a solution for struggling public pension plans ?

A week ago, Dr. Everett Ehrlich [1], released a groundbreaking report on hedge funds’ potential to add billions of dollars in annual returns to U.S. pension plans and university endowments.

The paper, entitled « The Changing Role of Hedge Funds in the Global Economy », uses cutting-edge quantitative modeling to calculate hedge funds’ contribution to investment portfolios, while also examining how hedge funds have evolved into a tool used by institutions that serve the public good to diversify investments, manage risk, and deliver reliable returns.

The report finds that a modest allocation to hedge funds would boost returns to U.S. public pension plans by approximately $13 billion annually !

These findings come at a crucial time for public and private pensions struggling to overcome demographic and fiscal challenges to meet their financial obligations to workers and retirees.

The paper similarly finds that hedge funds could unlock as much as $1.73 billion in additional returns for university endowments, helping to fund scholarships, professorships, research and other activities on campuses nationwide.

“Institutions like pensions and universities are increasingly turning to hedge funds to manage risk and produce returns,” said Dr. Everett Ehrlich, author of the paper. “I wanted to quantify the contribution of hedge funds to these portfolios and the results I found were telling – hedge funds could potentially boost returns for these investors by billions each year. Hedge funds won’t solve the pension crisis by themselves, but with $13 billion on the table, I’d expect more state and local governments will make them part of the solution moving forward.”