Endowments and Pensions Diversifying into Alternatives


Everywhere you turn, you hear it... pensions and endowments are turning to alternative investments, be it hedge funds, private equity, real estate, timberland, or other exotic or esoteric holdings. As the equity markets remain volatile and unpredictable, with macro trends overshadowing stock picking skills, institutions seek an alternative to the current low return environment in traditional assets. It is clearly happening — alternatives are becoming more mainstream; and with this expansion, comes risk.

Lack of Visibility

A recent white paper by Woodbine Associates found that more than half of buy-side firms polled were not confident in the accuracy of their present accounting systems and nearly a third said that they cannot calculate exposure in real-time. This problem only gets exacerbated by the diversification into various asset classes, which are considerably more difficult to value than equities or fixed income. Much of the risk comes in the form of fear due to a lack of information and visibility. The actual success or failure of this move to alternatives may not be known for many years, and will vary from one institution to the next – so the best thing you can do today as one of the institutions considering this shift is to have at your fingertips the tools to provide visibility into your exposure, risk, and performance, as it happens.

Read how a good internal model can help mitigate those risks and learn how Cogency can help you in this endeavor.