Foundations, Endowments Remain Bullish on Hedge Funds

Endowments and foundations continue to favor hedge fund strategies, according to NEPC’s second quarter measure of these organizations’ confidence and sentiment related to the economy, investing and market performance.

Sixty-five percent of respondents reported hedge fund exposure greater than 10% of their total portfolio.

NEPC, an investment consulting firm to endowments and foundations, conducted the online poll of endowments and foundations in July.

Two-thirds of respondents indicated a preference for hedge fund strategies with less than $5 billion in assets under management.

NEPC said in a statement that many investors believed that smaller hedge funds would likely be nimbler and thus drive higher returns.

About a third of respondents said that emerging markets hedge fund strategies would be likeliest to generate the highest returns over the next five to seven years, followed by multistrategy and event-driven strategies.

A recent report said investors had shown increasing interest in event-driven strategies during the second quarter.

Fifty-three percent of endowments and foundations surveyed said they considered hedge funds “a separate investment class” within their investment programs, while 47% said they were “an investment vehicle used to gain exposure within an asset class.”

For 39% of respondents, hedge funds’ primary role in their portfolios was “diversification,” while for 22% it was “volatility mitigation” and for 18% “absolute return.”