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Endowments and Foundations

NEPC: Endowments, foundations upping allocations to marketable alternatives

Investment consultant NEPC polled its endowment and foundation clients in July and found that 68% have target allocations of 10% or more to marketable alternative investments including hedge funds and mutual funds offering alternative beta, risk-premia, risk-parity, global asset allocation and global tactical asset allocations strategies.

Forty-seven percent of respondents reported target weightings to marketable alternatives of between 11% and 20%, and 21% had a target of between 21% and 50%, showed results of the survey, which were released Tuesday.

By comparison, only 45% of respondents reported target weightings to marketable alternatives of more than 10% in response to NEPC's July 2016 endowment and foundation survey. Most endowment and foundation CIOs — 65% — said they intend to maintain their allocation to marketable alternatives over the next year, while 16% said they plan to modestly increase their targets. About 16% said they will modestly reduce their weighting and 3% indicated they will substantially lower their allocation.

About 48% of those surveyed said they invest fund assets in both liquid and illiquid marketable alternatives; 26% only invest in liquid strategies; 13% only invest in illiquid strategies; and 13% don't invest in marketable alternatives.

"Despite some criticism about high fees, most endowments and foundations consider marketable alternatives a vital component of their portfolios," said Kristin Reynolds, partner in NEPC's endowments and foundation practice, in a report outlining the survey findings.

"Investors value the benefits that alternative strategies provide, especially because of lingering concerns about the impact that global economic and geopolitical uncertainties could have on portfolios," Ms. Reynolds said.

For example, 80% of respondents said portfolio diversification and 71% said risk management were two of the best attributes of marketable alternatives investing. Respondents said disadvantages of investing in marketable alternatives were low or disappointing returns (76%); high fees (73%); and insufficient transparency (65%). Respondents could select more than one benefit or disadvantage.

Sixty-two endowments and foundations responded to the survey.