Just as more investors are pulling out of hedge funds, Carnegie Corp. is leaning in.
Carnegie, the $3.5 billion foundation founded by steel tycoon Andrew Carnegie in 1911, has 22% of its portfolio in hedge funds and may look to increase that allocation, Brooke Jones, the director of investments, said in an interview with Bloomberg Television. Peers spurning the $3.3 trillion industry are being shortsighted as they react to the historic bull run for stocks, she said.
“Pulling money out of hedge funds today, if you’ve got the right talent, is the wrong decision,” Jones said. “It’s prudent to start being a little counter-cyclical.”
Hedge funds are under pressure as investors revolt after years of steep fees and humdrum performance. Shutdowns have been outpacing openings in a tough climate for capital raising, and some of the biggest names in the business have closed shop or returned client cash. Net outflows of $98 billion in 2019 were the highest in three years, according to eVestment data.
“Some of the behaviors are happening because people are dissatisfied with their returns, and I understand that,” Jones said.
Carnegie, the New York-based grant-making organization promoting democracy, education and international peace, takes a different approach, she said.
“As our long-only portfolios run up, we’ve been saving gains and slowly averaging in to our hedge fund portfolio,” Jones said.
Carnegie’s hedge fund holdings are unclear, but last year was a good one for some of the industry’s best-known stock-pickers. Chase Coleman’s Tiger Global Management, Andreas Halvorsen’s Viking Global Investors and Gabe Plotkin’s Melvin Capital Management are among firms that posted double-digit gains.
To increase its hedge fund allocation, the foundation may need cash from income or sales in its private market holdings. That is growing more challenging in areas like private equity and real estate, where last year there were indications that payouts may be drying up, according to Jones.
“The constraint is really the liquidity process in the market,” she said.
Long-short stock funds look especially attractive to Carnegie. Managers in the foundation’s portfolio are beginning to make money with their bearish bets “for the first time in a long time,” she said.
Carnegie also likes credit hedge funds. That doesn’t necessarily include so-called drawdown vehicles, an increasingly popular structure that enables clients to avoid paying fees until money is called for investment opportunities.
“At the end of the day we’re backing talent, and talent needs to keep the lights on,” Jones said. “They need to research. They need to be able to execute even when what they’re doing is out of favor.”
This article was provided by Bloomberg News.
