Some Foundations, Endowments Re-evaluating Hedge Fund Use

Asked which hedge fund strategies would generate the highest returns over the next three to five years, the respondents gave these responses:

• Multi-strategy—36%
• Long/short equity—33%
• Global macro—25%
• Credit—22%
• Event-driven—13%
• Commodity—10%
• Other—18%

 “While hedge funds play an important role in many institutional portfolios, the last several years have been difficult for the industry and investors are starting to look very closely at how hedge funds can work for them,” Cathy Konicki, partner and head of NEPC’s endowment and foundation practice group, said in a statement.

“These survey results are by no means indicating a mass exodus from hedge funds, but they do point to greater pressure being felt by the industry as a whole.”

Other Findings

NEPC’s quarterly poll measures endowments’ and foundations’ confidence and sentiment related to the economy, investing and market performance.

In the new survey, 50% of respondents said the U.S. economy was in a worse place now than it was at the same time last year—a threefold increase from the first quarter.

In addition, 52% said a slowdown in global growth loomed as the biggest near-term threat to their portfolios, down from 81% that said this in the first quarter.

Sixteen percent cited rising interest rates as a concern, and 13% each global deflation and the potential for overseas conflict.

Fifty-one percent of respondents said they expected the U.S. Federal Reserve to raise interest rates this year, while 49% expected no change.

Asked whether Brexit and other recent developments around the world would prompt them to change their exposure to international equities, 91% said they would not.

As far as the November presidential election is concerned, 70% of respondents expected Hillary Clinton to win.

At the same time, they were almost evenly split on whether she or Donald Trump would have a more positive influence on U.S. markets and their portfolios.