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Hedge Fund Exposure Pays Off for University Endowment

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Stockholm (HedgeNordic) – The endowment fund of Aalto University in Finland edged down 3.5 percent after all fees and costs in 2022 during what was a challenging year for institutional investors. The endowment fund’s “alternative risk” allocation, a portfolio of hedge fund strategies that accounts for a little over 20 percent of its €1.3 billion portfolio, returned 11.1 percent in 2022. The endowment’s exposure to hedge funds has finally paid off.

“2022 was a challenging year for institutional investors,” says a press release by Aalto University endowment. “Inflation and the resulting monetary policy tightening together with growth risks, both amplified by the war in Ukraine, led to declines in asset values across all traditional asset classes,” according to the press release. “This lack of diversification made portfolio management exceptionally challenging during the year.”

“The allocation to alternative investments in credit risk, private equity and alternative risk had a positive contribution to the return and helped to protect the endowment capital…”

The endowment fund’s 3.5 percent loss in 2022 was driven by the exposure to global listed equities. A very low allocation to government bonds and traditional credit, which experienced negative returns in 2022,  also helped the endowment fund of Aalto University minimize losses. “The allocation to alternative investments in credit risk, private equity and alternative risk had a positive contribution to the return and helped to protect the endowment capital from more severe losses,” according to the press release.

The Aalto University endowment builds its €1.3 billion portfolio around several risk-based building blocks, including interest rate risk, credit risk, equity risk, and alternative risk. The “alternative risk” building block features market-neutral diversifying strategies such as trend following, systematic risk premia, equity market-neutral, global macro, relative value and arbitrage strategies, among others. This building block returned 11.1 percent in 2022 to deliver an annualized return of 2.1 percent from mid-2010 through the end of last year. The Aalto University’s endowment portfolio generated an annualized return of 5.2 percent since mid-2010.

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Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

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