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.”