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September 24, 2002 at 08:00 PM
WILTON, Conn. (HedgeWorld.com)–University and college endowments in the United States have sharply raised allocations to hedge funds at a time when their overall portfolios have been battered by steep equity declines, according to a Commonfund Institute survey released Sept. 16.
The interim study, which surveyed 100 U.S. educational endowments, found that for the 12-month period ending in June, endowments looked at in the study had average annual returns of negative 5.44% over a stretch of time when the Standard & Poor’s 500 stock index dropped 18%.
The largest and smallest funds faired best when it came to returns. Endowment portfolios US$1 billion or more lost 3.4%, while portfolios of under US$10 million lost 3.1%. Mid-size endowments of US$51 million to US$100 million faired the worst, seeing returns erode 7.4% during the fiscal year.
The interim report done in advance of the 2003 Commonfund Benchmarks Study found that 29% of the endowments surveyed had altered their asset allocations patterns during the fiscal year ending in mid-2002.
Alternative investments rose to 15% from 11% for the 12-month period. Within the alternative arena, hedge fund allocations rose to 35% from 22%, while private equity allocations fell to 11% from 14% and real estate dropped to 6% from 7% with a 12% venture allocation remaining unchanged. Other allocations to alternatives by endowment investors included a mix of international private equity, natural resources, and energy.
The migration of endowment assets to hedge funds seen in the study suggested that U.S. colleges and universities were actively diversifying their portfolios during bearish market conditions, the Commonfund report said. “What this (interim) report suggests is that alternative investments, most notably hedge funds, helped diversify portfolios for endowments and added a cushion in terms of performance,” said John Griswold, executive director of the Commonfund Institute.
