NEW YORK (HedgeWorld.com)–A survey of 729 college and university endowment and foundations suggests that the organizations are no longer expanding the hedge fund portion of their portfolios, in contrast to the growth revealed by similar surveys in past years.

The poll was conducted during the last quarter of 2005 by Commonfund, a Wilton, Conn., firm that manages US$36 billion for various nonprofit institutions.

While alternative asset allocation by the participating institutions was slightly higher in 2005 compared with 2004 (35% vs. 34%), the share of hedge funds in alternatives slipped to 47% from 48%.

Significantly, the change was more pronounced for the larger endowments and foundations, which tend to be in the vanguard of investment trends and typically make higher returns.

Schools with over US$1 billion cut their hedge fund allocations from 46% of assets in 2004 to 44% in 2005. These big endowments and foundations are moving to another alternative investment: they increased holdings in energy and natural resources, including timber, from 12% to 14% of alternatives.

By contrast, many of the smaller endowments, which find it difficult to invest as much in private equity and natural resources, put more of their assets into hedge funds. Private equity and natural resource investments are illiquid and often require a large commitment.

Survey participants as a whole made 9.7% in fiscal year 2005, but that average concealed differences. The top performers made substantially more. Three-year returns for schools with more than US$1 billion averaged 11.6% annually, compared with 9.5% for the smallest foundations and endowments.

A previous Commonfund study showed that top-performing institutions have higher than average allocations to private equity funds that invest in real estate and to natural resources, while making lower-than-average percentage allotments to hedge funds.

CKurdas@HedgeWorld.com