June 2, 2006

What Every Nonprofit Institution Should Know About Investing in Hedge Funds

By DAVID M. MATTESON and JEFFREY BLUMBERG

You're the general counsel at a small to midsize institution that doesn't have its own endowment manager, much less a team of them. Board members and top administrators bring up the possibility of investing in hedge funds for possible higher returns and as a buffer against market volatility. But they're worried about increased risk. What do you tell them?

First you might re-evaluate that perceived risk with them. Most hedge funds, in fact, are no riskier than traditional investment