Close Close

Portfolio > Alternative Investments > Hedge Funds

Survey Finds Endowments, Foundations Favor Hedge Fund Registration

Your article was successfully shared with the contacts you provided.

NEW YORK (–Nearly 60% of foundations and endowments surveyed by the Hennessee Group LLC said they favor proposed Securities and Exchange Commission rules that would require hedge fund managers to register as investment advisers.

However, among the bigger endowments–which tended to have more assets in hedge funds and more hedge fund investing experience–the survey found little support for the proposed rules. The 30% of endowments that opposed the rules managed three times more in assets, allocated nearly 46% more to hedge funds and had 50% more experience investing in hedge funds than the supporters, said E. Lee Hennessee, managing principal of the Hennessee Group.

The survey, conducted by the Hennessee Group for submission to the SEC as part of the commission’s open comment period on proposed hedge fund rules, found that the 30% of foundations and endowments that opposed the new rules controlled US$1.8 billion in assets. The 59% of foundations and endowments that supported the rules controlled US$536 million in assets.

Foundations and endowments with another US$1 billion in assets had no comment, according to the survey.

The results show smaller endowments and foundations with less hedge fund investing experience tend to favor mandatory registration, while the larger organizations tend to oppose it.

The survey was conducted by contacting a random sample of 620 foundations and endowments following the SEC’s July 14 proposed rule announcement. The Hennessee Group obtained 46 responses before it had to close the survey and tabulate the results in order to provide them by the end of the SEC’s 60-day comment period. Of those respondents, 63% were endowments and 37% were foundations. The average fund in the survey has US$976 million in investable assets.

Two-thirds of the funds surveyed had less than US$500 million in investable assets. The funds surveyed had an average of 17% of their assets allocated to hedge funds. Based on the responses, the average hedge fund allocation is expected to increase in 2005 to 19%.

Nearly half–46%–of the foundations and endowments surveyed made their initial hedge fund investments after 2000. Twenty-seven percent made their initial investments between 1995 and 1999. Only 9% made an initial allocation to hedge funds before 1990.

Foundations and endowments that have been investing in hedge funds longer tend to have larger average allocations, according to the survey. Funds with more than 15 years of hedge fund investing experience had allocations averaging 34%. Those with 10 to 14 years’ experience had an average hedge fund allocation of 26%. Funds with less than five years hedge fund investing experience had the smallest average allocations, 11%.

Generally, foundations and endowments with more investing experience tended to oppose the proposed new SEC rules. The average hedge fund investing tenure among funds opposed to the rules was nine years, while the average tenure among foundations and endowments that supported the new rules was six years.

Among hedge foundations and endowments that did not support the new rules, the average allocation to hedge funds was 22%. The average allocation was 15% among funds that supported the new rules.

Hennessee Group officials said they conducted the survey to ensure the views of foundations and endowments were accurately represented among the comments being submitted to the SEC.

[email protected]

Contact Bob Keane with questions or comments at [email protected].