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The conference, organised by the Department of Finance at Aalto University School of Business on 17 March 2025, examined the growing importance of alternative investments in the portfolio management of institutional investors such as pension funds and foundations. Moderated by Lea Vaisalo, Head of Alternative Investments at Nordea, the panel discussion focused on the opportunities and challenges presented by hedge funds, private equity and private debt funds.

Among the issues discussed were the diversification benefits offered by alternative investments and the relationship between costs and returns. Although no consensus was reached, the general view was clear: alternative investments are playing an increasing role in institutional investment strategies.

Professor Russell Wermers of the University of Maryland predicted that alternative investments would become more common in the future, including in the portfolios of retail investors. His view was supported by a presentation by Assistant Professor Petra Vokata. ‘The research shows that the risk-adjusted returns of institutional investors in private equity funds are not significantly better than those of professional individual investors. Nevertheless, access to alternative investments for small investors remains limited and faces many practical barriers.’

Equality is still a long way off in the asset management industry

The most politically topical discussion of the conference took place in a session chaired by Associate Professor Peter Nyberg, Head of the Department of Finance at the School of Business. It looked at the opportunities for hedge funds owned by women and people of colour to raise capital and build a fund business. Juha Joenväärä, Associate Professor at the School of Business, presented a recent working paper he co-authored with Gregory Brown, Mikko Kauppila and Christian Lundblad. In it, they build the first comprehensive database on the ownership structures of US hedge funds. The study is based on extensive data collected by the US authorities.

‘According to our research, by the end of 2022, only 1.1% of the assets managed by US hedge funds were held by women or funds owned by historically underrepresented ethnic and racial minorities. These players face significant challenges, particularly in raising early-stage capital, which often results in funds remaining small throughout their lifetime. In addition, it is difficult to obtain mandates from large institutional investors such as pension funds and foundations,’ says Juha Joenväärä.

Challenges remain, even though social movements such as Black Lives Matter and MeToo have raised awareness of equality in the asset management industry. Several large pension funds have set up programmes to support minority-owned funds, but research by Joenväärä and colleagues finds no evidence that these programmes have significantly increased investment flows into minority-owned funds. In the case of black-owned hedge funds in particular, access to finance has remained virtually unchanged.

Working for change

Laura Wickström, Investment Director at Veritas, commented that it would be interesting to see if the results differ between Europe and the US. She said that European investors often take more account of equality factors when making investment decisions compared to many US players. Wickström also highlighted the need to broaden the scope of diversity research from demographic diversity towards dimensions such as background, skills and experience.

Professor Cristian Tiu from the University of Buffalo said that their fund has asked consultants to identify investment targets among minority-owned funds. Dr. Tiu also sits on the investment committee of the university foundation he represents. ‘However, the list offered by our consultants is unfortunately short – most funds do not meet the requirements of institutional investors because they are simply too small. Again, this is probably due to the difficulty of raising seed capital.’

‘Despite the increasing external pressure on investors and the internal efforts of fund companies to promote diversity, the survey results suggest that no substantial change has yet taken place – despite the efforts made,’ says Juha Joenväärä.