The University of Connecticut’s (UConn) endowment is moving away from hedge funds in favour of a more cost-efficient strategy involving buffer ETFs to manage risk in its $634m portfolio, according to a recent report by BNN Bloomberg.
The report, citing David Ford, chairman of UConn’s investment committee, notes that the university sold off nearly all its hedge fund investments during the most recent fiscal year and shifted to buffer ETFs, which have attracted over $58bn in assets in just three years.
Ford describes buffer ETFs as a simpler, less expensive alternative to traditional hedge funds, offering the added advantage of greater liquidity.
While hedge funds traditionally charge fees of 2% of assets and 20% of profits, buffer ETFs average a fee of just 0.8%, the report says. Many of these ETFs track major stock indexes, such as the S&P 500, providing downside protection while capping gains over set periods, typically one or two years.
Despite scaling back its hedge fund exposure, UConn retains investments with two long-only equity managers. In the fiscal year ending 30 June, UConn’s endowment posted a 12.1% return, slightly underperforming the 13.5% gain achieved by Innovator’s largest buffer ETF, the US Equity Power Buffer ETF.
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