In recent years, institutional investors (including public and corporate pensions), have increasingly relied on hedge funds to diversify their portfolios and provide reliable returns. Today, institutional investors represent 66% of the capital invested in the hedge fund industry. Many institutions are currently working to cope with major demographic and fiscal challenges, including funding shortfalls, which impact corporate and public pensions’ abilities to fulfill their obligations. As a result, institutions are increasingly seeking ways to diversify their investment portfolios to produce reliable returns. Further, recent data found that 65% of the top 60 largest U.S. public pension funds currently invest in hedge funds. The 60 public funds analyzed allocate an average of 5.6% of investment assets to hedge funds for a total of $77.9 billion in 2013. Pension plans use a number of asset allocation techniques and most call for a significant allocation to hedge funds and other alternative investment options over the next few years. Hedge funds are not a silver bullet for the challenges facing public pensions, but they are increasingly part of a comprehensive and responsible approach toward meeting financial obligations.

1. Hedge Funds and Pensions
Managed Funds Association | January 2014

2. Overview
Hedge funds originated as an investment vehicle to help diversify portfolios,
manage risk, and produce reliable returns over time. While hedge funds’
investor base has evolved though the years – from individuals to institutions
such as pension plans, universities, and foundations – their core goals have
not.
Institutions face mounting challenges toward meeting their financial
obligations. Pension plans, in particular, face demographic challenges
resulting in a funding shortfall.
As a result, pension plans have shifted investment strategies in recent
years to alternative investments - including hedge funds- which have helped
place institutions on firmer ground over the long-term. This presentation
details the growing partnerships between hedge funds and public and
corporate pension plans.
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3. 1
Hedge Funds and Pensions
Hedge funds’ investor base has evolved significantly over the years, with 66%
of assets under management currently coming from institutional investors such
as pensions, endowments, and foundations.*
Many institutions are currently working to cope with major demographic and
fiscal challenges, including funding shortfalls, which impact corporate and
public pensions’ abilities to fulfill their funding obligations. As a result,
institutions are increasingly seeking ways to diversify their investment portfolios
to produce reliable returns.
FACT: 66% of hedge fund
assets are held by
institutional investors.
*Source: 2014 Preqin Global Hedge Fund Report, January 2014
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4. 2
Public and State Pensions Invest in Hedge
Funds
Public and state employee pension plans offer retirement security for
millions of workers, retirees, and their families nationwide. These
pension plans have increasingly partnered with hedge funds to help
diversify their investments and help to provide economic security to their
beneficiaries.
Public pensions have strengthened their partnerships with hedge funds
in recent years.
Recent data found that:
• 65% of the top 60 largest U.S. public pension funds currently
invest in hedge funds
• The 60 public funds analyzed allocate an average of 5.6% of
investment assets to hedge funds for a total of $77.9 billion in
2013*
*Source: Morgan Stanley, 2013, based on publicly available data.
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5. 3
Public Pensions Invest in Hedge
Funds
Hedge funds’ investor base in the U.S. at the state and public plan level is
diverse. Investors in hedge funds range from unions such as AFL-CIO to local
retirement plans in Louisiana to teachers in Illinois.
Public pension funds are one of the most prominent groups of institutional
investors allocating investments to hedge funds. Public pensions currently
represent over 22% of all institutional capital invested in hedge funds. *
From 2011 to 2012, public pensions shifted their average alternatives
allocation from 20% to 24% of their overall portfolio.**
*Source: 2014 Preqin Global Hedge Fund Report, January 2014
**Source: Morgan Stanley, 2013, all based on publicly available data source.
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6. 4
Corporate Pensions Invest in Hedge
Funds
Many of the largest employers in the U.S. view hedge funds as an essential tool in their
investment toolbox in their efforts to provide reliable, risk adjusted returns that enable
their plans to pay the retirement benefits to millions of Americans.
The partnership between hedge funds and corporate pension plans has continued to
expand in recent years. Pension funds are seeking reliable returns and diversified
portfolios, with many plans increasing existing allocations with hedge funds. These
plans use a variety of asset allocation techniques and most call for a significant
allocation to hedge funds and other alternative investment options over the next few
years.
Studies indicate corporate plans are looking to increase their allocations to hedge funds
in the coming years as well. According to a Morgan Stanley 2013 report based on
publicly available data sources, 56% of the top 50 largest U.S. corporate pension plans
currently invest in hedge funds and allocated on average 5.9% of their assets to hedge
funds for a total of $54 billion.**
Hedge funds are not a silver bullet for the challenges facing public pensions, but they
are increasingly part of a comprehensive and responsible approach toward managing
risk and meeting financial obligations.
*Source: “50 Largest U.S. Corporate Pension Plans’ Exposure to Hedge Funds.” Morgan
Stanley, 2013.
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7. 6
Hedge Fund Investor Map
To learn more about how hedge funds help pensions provide economic
security for workers, retirees, universities and non-profits in your state, click
here.
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