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High-Performance Endowments Allocate More to Alternatives, Commonfund Finds

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WILTON, Conn. (–Educational endowments with high annual returns report significantly greater allocations to alternative strategies than their lower-return counterparts, according to an analysis of fiscal year 2003 survey data by Commonfund.

Those in the top decile and quartile in a ranking of endowments by annual performance had markedly different asset allocations from study participants as a whole. They invested less in U.S. equity while investing more in alternatives. Within alternatives, they showed broader diversification into private equity and energy and natural resources, with lower percentage allocation to hedge funds.

These institutions had more complex and actively managed portfolios and used a larger number of active managers. They also possessed larger investment staffs.

Hedge funds must have contributed to the better performance of the top group because hedge funds make up nearly half of alternative assets, John Griswold, executive director of the Commonfund Institute, said.

He added that endowment asset allocation held steady during the bear market, following a trend, and continues to hold steady now.


The study population as a whole allocated 33% of assets to alternative strategies (on a dollar-weighted basis). This share has been rising slowly, from 23% in 2000. Hedge funds now account for 45% of alternative assets. Domestic equities constitute 32% of total assets; fixed income, 19%; and international equities, 14%.

One-third of the responding endowments said they expect to increase their alternative holdings over the next year. About 20% expect to decrease their allocations to fixed income.

This data came from interviews conducted during the third and fourth quarters of last year and pertain to the fiscal year that ended on June 30 for most respondents. A total of 657 institutions participated. Of these, 66 were in the top decile with an average annual return of 10%, and 159 were in the top quartile with a return of 7.5%.

Returns for all institutions studied averaged a little more than 3%, positive after two years of losses that have caused financial difficulties for many schools.

Commonfund manages approximately US$29 billion for more than 1,600 nonprofit institutions. Its research arm surveys other institutions such as health-related foundations as well as educational endowments .

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