Nobel Foundation turns to hedge funds to revive fortunes

The Nobel Foundation in Stockholm has turned to the hedge funds sector in a bid to restore the health of its finances, following a decade of decline.

This year, the Foundation was forced to cut the cash amount of its prize for the first time since 1949. At end of 2010, the foundation had $448m in investments, an 18% drop on its 2007 level.

Lars Heikensten, executive director of the Foundation, in an interview with Bloomberg said: “When we look at the analysis, we see that we can get more return with less risks by doing that. If we can choose hedge funds that we trust, then we can get better returns for given risks.”

The decision to use hedge funds goes against the original will of the founder, Alfred Nobel, who stated that his bequest should be invested in ‘safe securities’.

Heikensten added the fund “probably shouldn’t” be fully invested in debt securities. “We live in difficult times and had not been as successful as one would have wanted in the last 10 years,” he said.

The foundation has been over-spending for years, “and we had to do something,” Heikensten told Bloomberg. Over the past ten years, the fund has returned 1.5% to 2% on average, below the 3.5% to 4% needed to keep its capital stable, according to Heikensten.

But average hedge fund returns are not enouraging. The HFRX Global Hedge Fund Index has gained 2.4 % in the first 11 months of this year. The MSCI world index returned 11 % in the same period, though it fell 26 % between the end of 2007 and the end of 2011.

On its website, the Foundation says that in 2011, 47% of its capital was invested in equities, down from 67% in 2007. Over the same period, stakes in alternative investments rose to 33% from 12%, due to increased allocations to hedge and private equity funds. Fixed-income investments remained at about 20%. 

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