Hedge funds are a polarizing topic across the country, but the Rhode Island state pension system’s investment in them at a time of major benefit cuts has drawn a backlash. University of Rhode Island finance professor Gordon H. Dash has researched hedge funds, hedge-fund forecasting and the use of neuroscience to inform hedge-fund investing. He teaches students the principals behind hedge funds and this year is organizing URI’s first student-run hedge fund.
PBN: Is the debate going on about hedge-funds investment by pension systems in Rhode Island occurring across the country?
DASH: Without a doubt. Not only the nation but this is a global question for investors everywhere. Hedge funds have always been an entry to the global community because there is constantly a desire by investors to earn higher and higher rates of return. That is particularly true today when the rates of return on conservative investments are so low. The risk may be low, but the returns are also low, which makes it more difficult for the average working person who is just saving for retirement to accumulate sufficient capital to maintain the lifestyle they have become accustomed to.
PBN: So is the debate whether hedge funds are too risky or too expensive to get a good return?
DASH: Those are the broad-based questions but those questions are too broad to really understand what investors are attempting to evaluate when they use the term “hedge fund.” The term is really “hedge fund and alternative investments,” and what that means is an investment other than equity, or fixed income, which would be corporate debt, treasury debt or municipal debt. When you look at hedge funds, they offer several different approaches to managing risk and return.