Hedge funds offer stability during uncertainty
Post-working years for America’s and Maryland’s retirees have become precarious. Rampant inflation and new COVID variants force retired workers to repeatedly adjust their financial planning and prepare for the worst. In an economic climate that’s this uncertain, elected officials and regulators must do everything they can to protect pension funds, which invest in hedge funds, on behalf of their beneficiaries.
The reason for pensions and retirement systems investing in hedge funds is simple: Hedge funds offer protection against market volatility and a steady return on investment that other financial vehicles cannot provide. In an era where no one knows what’s around the bend, this protection against risk and dependable returns over time is invaluable.
It’s not just pensions that value this protection. University endowments and charitable nonprofits invest in hedge funds, seeking the same financial security. Through investments made by pensions, colleges, and nonprofits, hundreds of thousands of Marylanders depend on hedge funds. It’s critical that lawmakers in Annapolis and Washington D.C., understand the role hedge funds play in our economy.
Pensions make calculated investments in hedge funds so that their plan participants receive the highest amount possible in their monthly retirement checks. During my tenure as an elected official, I realized how necessary these checks were on individual and collective levels. The financial well-being of retirees is an indicator of an overall constituency’s health.
Pensions in Maryland invest a combined total of $18.4 billion in hedge funds. This number includes investments from the Maryland State Retirement and Pension System, which invests $4.3 billion on behalf of nearly 200,000 teachers, first responders and other state employees.
Hedge funds use sophisticated investment strategies such as short selling to generate maximum returns on the $4.3 billion investment. The greater the return, the more financially stable the pension’s underlying beneficiaries become. As a former state employee, the peace of mind that comes from a stable retirement is invaluable.
University endowments and nonprofits also look to hedge funds to provide the same kind of financial stability that pensions depend on. Funding is often a major hurdle for scholarships and charities to jump over, so they rely on investments in hedge funds to provide the capital needed for mission-critical work. More than 100,000 aspiring college students rely on the University System of Maryland, which invests $110 million in hedge funds, to provide scholarship opportunities. The Howard Hughes Medical Institute invests $4.5 billion in hedge funds, and the Cystic Fibrosis Foundation places $242 million in the hands of hedge funds.
The financial services component of our economy is complex. This includes hedge funds, which may work on Wall Street, but lawmakers need to understand that their work benefits everyday Americans in the state of Maryland. I hope my former colleagues will seek to understand how hedge funds work, see the value they provide, and ultimately protect the vulnerable segments of our society that depend on them.