WILTON, Conn. (HedgeWorld.com)– A first-time survey of non-educational foundations by the Commonfund Institute shows that 23% of these organizations increased their allocation targets for alternative investments in the past year and that 31% expect to do so in the year to come.
Current allocations to alternatives were at 14% of foundation assets, slightly below the current target of 15%. “It is clear that foundations have an increasing appetite for alternative strategies for both diversification and return potential,” the Commonfund report observes.
Hedge funds are the largest component in the alternatives category, accounting for 32% of alternative assets. The alternatives category, as defined by Commonfund, also includes private equity, venture capital, equity real estate, energy and natural resources and debt strategies such as high-yield bonds and distressed debt.
The share of hedge funds in alternatives varied inversely with the size of foundation assets, with the smaller institutions relying more heavily on hedge funds for diversification than the larger ones. Foundations with US$1 billion or more in assets diversified broadly into private equity and other investments and had only 25% of their alternatives portfolio in hedge funds.
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By contrast, in smaller organizations with between US$50 million and US$100 million in assets, 55% of alternative investments were in hedge funds. This number was 50% for the US$101 million to US$500 million group.
Commonfund reports that there were variances by type of foundation, as well. Private institutions have a much higher percentage (15%) of their total assets in alternatives compared to community foundations (9%).