Funds of funds and managers of managers are enabling smaller endowments to make alternative investments, as their larger brethren have done for years.
Several endowments with between $200 million and $500 million in assets have either increased their allocation within the past 18 months or are considering a first allocation to private investments, consultants say.
Endowment officials at Mount Holyoke College, The University & Community College System of Nevada, College of the Holy Cross, University of Washington and Haverford College are among those looking at alternative investments' potential of higher returns and lower correlation with other asset classes.
Russell V. Kuhns, president of R.V. Kuhns and Associates, a Portland, Ore., consulting firm, believes the advent of the fund-of-funds approach and the use of alternative investments by bigger endowments have caused officials of smaller funds to seriously consider the asset class. The firm currently consults to 25 to 30 midsized endowments and foundations.
Natalka Bukalo, president of Chartwell Consulting, Upper Montclair, N.J., said the move is a byproduct of the development of the manager-of-managers approach.
"In the last couple years, the manager-of-managers market has grown," she said.
Janice Albano, director of treasury operations at Mount Holyoke College, South Hadley, Mass., said the investment committee for its $288 million endowment fund is convinced the traditional returns in the domestic equity markets will not be as healthy going forward.
"We need to branch out more," Ms. Albano said.
The committee is considering a broad range of investment opportunities.
Later this month the college will be placing $40 million left over from an Odyssey Partners hedge fund that was liquidated in January, with new alternative investment managers.
Although the managers have been selected, Ms. Albano would not yet release their names.
The endowment also uses the fund-of-funds approach and has committed $14.4 million with three of The Common Fund's venture capital partnership funds.
Until the advent of funds of funds, "to get into venture capital, we would have had to go in more than we wanted to in the past," Ms. Albano said.
The $180 million University & Community College System of Nevada, Reno, has considered hedge funds and alternative investments in the past to enhance the fund's current 70% stocks and 30% bonds allocation, said Tim Ortez, director of banking and investments.
Trustees are discussing asset allocation changes that might include creating an alternative investment allocation. The system is allowed to invest up to $10 million in alternatives, but has chosen not to so far.
Earlier this year, College of the Holy Cross, Worcester, Mass., increased its alternative investments allocation following an asset allocation study.
The investment committee of the $240 million fund boosted the allocation to 5% from less than 1% of total assets. Bioventures, a local firm, is the fund's sole venture capital manager, handling $500,000.
William Durgin, vice president and treasurer at the college, said the board will decide next year if any additional venture capital commitments will be made. Funding would come from cash.
Officials at the University of Washington, Seattle, are pondering additional alternative commitments with the help of Cambridge Associates, said Alison Borland, assistant treasurer for the $448 million fund.
Discussions come on the heels of an initial commitment of $10 million to the Varde Bankruptcy Fund.
Haverford College, Haverford, Pa., also added two alternative investments for its $191 million endowment fund earlier last month in a move to increase its allocation to alternatives to 15% of assets from the current 10%.
The Haverford fund committed $7 million to Grantham, Mayo, Van Otterloo & Co., Boston, for an emerging countries debt mandate and $5 million to the WCAS Capital Partners III private equity fund.
