Foundations and endowments have a lot of complaints about hedge funds, but most are not giving up on them, according to a new survey by NEPC, an investment consulting firm.

Indeed, given their concerns about the U.S. economy and global growth prospects, many investors may be looking toward hedge funds to protect their portfolios.

But a sizable number seem to be turning away or cutting back.

NEPC conducted its online Q2 2016 Endowment and Foundation Poll in July with 59 participants.

Twenty-four percent of respondents reported that they had zero exposure to hedge funds, compared with just 2% that said they had no exposure in NEPC’s Q2 2014 poll.

Another significant drop came in allocations. In the 2014 survey, 39% of foundations and endowments said they had 11% to 20% of their portfolios allocated to hedge funds, while in the new poll, only 23% had the same allocation.

Fifty-four percent of respondents said high fees were the biggest challenge they faced with their hedge fund investments at present. 

A quarter of survey respondents said they had asked for reduced fees or had been offered reduced fees by their hedge fund managers within the past six months.

Concern about fees was second only to low or disappointing returns as their main challenge, cited by 80% of respondents. Thirty-seven percent said transparency was a top concern.

Not all the survey’s findings were negative for the hedge fund sector.

Even though 28% of endowments and foundations said they had either reduced or were considering reducing their allocation to hedge funds, 55% were not actively discussing such a move with their investment committee.

And 17% said they had either increased or were considering increasing their allocation.

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.