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Foundations Report Strong Returns, Continue Increasing Hedge Fund Share

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WILTON, Conn. (–U.S. foundations made an average return of 17% for fiscal year 2003, according to a recent survey conducted by Commonfund Institute, the research arm of the institutional asset manager. Commonfund’s poll for the previous fiscal year indicated an average loss of 8.7%.

The largest foundations, defined as those with assets of more than US$1 billion, performed best in fiscal year 2003, with an average return of 20.5%. This group has more diversified portfolios and invests heavily in alternative strategies. About 65% of these big foundations said they expect to increase alternative allocations, up from 32% in the previous survey.

Among the entire survey population, 38% plan to increase this allocation, compared to 27% previously. Alternatives account for 14% of overall assets.

Hedge funds comprise 35% to 63% of survey participants’ alternatives portfolios, with the percentage varying by foundation size and other characteristics. Most institutions reported increasing their hedge fund allocation over the past year.

Most are invested in four or more hedge funds, with 20% investing in seven strategies and 37% using one strategy. Large foundations use more hedge fund strategies than smaller foundations. The strategies used most often are long/short equity, distressed debt, merger arbitrage and equity market neutral.

The study had 272 participants with combined assets of US$138 billion. They were contacted during the fourth quarter 2003 and first quarter 2004.

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Contact Robert F. Keane with questions or comments at:

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