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.