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Endowment Hedge Fund Share Grows as University Spending Swamps Returns

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NEW YORK (–School endowment investments made 2.9% in fiscal year 2003, a return insufficient to counter withdrawals of 5.4%, according to the National Association of College and University Business Officers annual survey.

In the meantime, hedge funds grew to more than 6% of survey participants’ total assets, up from about 5% in 2002. This share of hedge fund investments has increased almost every year since the 1993 NACUBO survey, when it was a mere 0.7%. But the average numbers obscure substantial differences.

Endowments greater than $1 billion historically have invested more in alternatives than smaller pools. This group now has about one-fifth of its total assets allocated to hedge funds–a new record. Some school officers have been considering the question of what this fraction should be Previous HedgeWorld Story.

Large endowments have higher returns, as NACUBO surveys have indicated over the years. But the association’s currently available study results do not analyze the connection between differences in endowment asset allocation and returns.


The 2003 survey, conducted by school pension and investment manager TIAA-CREF, had 723 participants, from Harvard University with US$18.9 billion in assets to small colleges with less than US$1 million. Investment returns for fiscal year 2003 varied significantly for the entire sample, ranging from a high of 28% to a low of minus 14.7%.

The largest endowments after Harvard are Yale, Princeton, University of Texas System and Stanford–a ranking that has changed little in recent years. A total of 39 schools had assets of more than US$1 billion. Besides universities such as Massachusetts Institute of Technology, University of California and Columbia, these include smaller colleges such as Grinnell, Wellesley and Williams.

Hedge funds accounted for 19.9% of assets in this more-than-US$1 billion group, up from 17.8% in 2002. By contrast, endowments with less than US$25 million have 1.6% of their assets in hedge funds.

Private equity and venture capital have been falling as a percentage of assets in NACUBO surveys and now stand at 1.3% and 0.8%. Hedge funds are the largest segment among alternative investments .

Survey data is for the fiscal year that ended June 30, 2003.

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