Nearly two-thirds of U.S. foundations actively invest in hedge funds today, and another 4% are considering first-time allocations in the next six to 12 months, according to Preqin’s June 2010 Hedge Fund Investor Spotlight.

Preqin’s survey of the 247 U.S. foundations it monitors found that these organizations allocated on average 14.5% of total assets to hedge funds, and had a target allocation of 16.3%. Significantly, 43% of U.S. foundations are currently below their target allocation to hedge funds, which means that this category of institutional investors can inject a large amount of capital into the asset class over the next year.

The report noted that foundations were relatively conservative in their approach to hedge fund investing, with 80% using funds of funds to some extent to gain exposure. Forty-five percent of foundations invest both directly in hedge funds and through funds of funds, 35% invest solely in funds of funds and the remaining 20% invest only directly with individual managers.

At present, the survey found, global macro, long/short equity and managed futures are popular strategies for foundations. Still, more than 30% of U.S. foundations take a more opportunistic approach in selecting hedge fund strategies, diversifying according to market conditions or the opportunities available. Foundations favor North American hedge funds, but 54% search globally for the best managers, while 19% look to Europe and 8% to Asia and the rest of the world for opportunities.

In May, the opportunists would have been wise to look for short-sellers, the only hedge fund strategy that turned in a positive performance, up 4.7%, as stock markets swooned (the S&P 500 index lost 8%) and implied volatility shot up to 32% after doubling over the past two months, according to Edhec-Risk Institute.

Edhec reported that for the first time in 18 months, the convertible arbitrage strategy failed to generate a profit, losing 2.4% because of the negative performance of both convertible

bonds and the credit spread. The managed futures’ global strategy also lost ground as the dollar rising and the commodities market declined, down 2.3%.

Emerging market funds turned in their worst performance since October 2008, down 4.7%, putting that strategy at the bottom of the losers’ heap.

Of course, equity-oriented strategies lost ground in May: Event driven fell 2.6%, and long/short equity did even worse, losing 3.7%. On the other hand, with its limited exposure to the stock market, the equity market neutral strategy just about broke even, losing only 0.4%. Funds of funds finished the months down 2.8%.

Michael S. Fischer (msf7@columbia.edu) is a New York-based financial writer and editor and a frequent contributor to WealthManagerWeb.com.