WILTON, Conn. - Endowments and foundations increased their allocations to hedge funds in the year ended June 30, a Commonfund report shows.
Among those that altered their asset allocations during the year, hedge fund exposure rose to 35% of the average alternatives portfolio from 22%.
Increased use of hedge funds helped boost alternative investments to 15% of total assets as of June 30, from 11% a year earlier among the funds that changed their asset allocations.
Of the 97 endowments and foundations surveyed, 29% reported changes in the asset allocation in the previous year.
The $197 million University of Connecticut foundation in Storrs is among those hiking hedge fund exposure. The foundation doubled its hedge fund allocation to 10% of total assets following an asset allocation study by Wilshire Associates, Santa Monica, Calif.
"We've been adding diversification," said Kevin Edwards, director of treasury services.
Of those institutions that made changes, the average allocation to domestic equities dropped three percentage points to 47%; the average allocation to international equities dropped one point to 10%.
John Griswold, executive director of Commonfund Institute, said while he's pleased endowments and foundations largely "are sticking to their guns" on asset allocation, he expects more shifts soon.
"This fall, there will be meetings of committees with a lot of concern," he said.
This is the second consecutive year that endowments and foundations showed negative returns. The average return was -5.4% for the year ended June 30 and -3% for the previous one-year period. For the year ended June 30, 2000, the average return was 13.2%.
The smaller the fund, the worse the return, the survey shows. Respondents with assets between $51 million and $100 million reported an average return of -7.4%, while those assets between $101 million and $500 million reported an average -6.1% return.
By contrast, funds with more than $1 billion in assets returns an average -3.4% for the year ended June 30.
The findings are from the interim edition of Commonfund's benchmark study, an annual survey of higher-education endowments and foundations. The interim study covers 97 endowments and foundations that were surveyed through an Internet questionnaire. The final results of the study will be released in 2003.