Sam Gallo, Chief Investment Officer of the University System of Maryland Foundation, discusses how hedge funds serve as an investment tool that emphasizes the importance of diversifiers to smooth returns and provide insurance against uncertain future market conditions.
Key takeaways:
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Diversifying into hedge funds and private capital gives the University System of Maryland Foundation access to investment strategies that can actively identify risks and opportunities, helping the portfolio adapt to changing market conditions.
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These strategies are specifically used to reduce volatility and smooth returns, ensuring the endowment can consistently fund scholarships, professorships, research, and campus facilities—even during market downturns.
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Because the endowment must support both current spending and future generations (10–15+ years ahead), hedge funds serve as a critical risk management tool; without them, higher portfolio risk could directly limit the foundation’s ability to fund students’ education and broader economic impact in Maryland.
Transcript:
My name is Sam Gallo and I’m the Chief Investment Officer of the University System of Maryland Foundation. The University System of Maryland Foundation serves twenty-three different higher ed institutions in the state of Maryland, inclusive of eleven USM institutions and then a variety of other community colleges as well as affiliated higher ed institutions in the state of Maryland. The foundation provides funds for scholarships, professorships, research, and facilities and maintenance. We help launch a lot of the economic activity that happens in the state of Maryland by preparing people for their next job, oftentimes their first job.
Hedge funds and private capital play a very important role in our portfolio. They’re in tune with markets. They see where market risks exist as well as where opportunities may lie. We use them to help balance out that volatility so that our trajectory is smooth and steady and hopefully on the upward path to achieve the returns we need to achieve to provide scholarships, professorships, research, and facilities and maintenance funding.
An endowment is supposed to be a perpetual vehicle. When we invest our capital, we’re thinking of both the spending that needs to be done today, this year, but we’re also thinking about ten years from now and fifteen years from now. So when you understand that concept, it would be absolutely devastating to our university and any university to not have good risk controls inside their endowment. If we were not able to invest in hedge funds, we would be losing a critical tool of risk management.
Having more risk inside of a portfolio just means that we’re risking not being able to send more students to college. When hedge funds in our portfolio succeed, students succeed, society succeeds.
