02/02/2012 Author: Elana Margulies (New York)

US university and college FY2011 hedge fund allocations relatively steady on-year

US college and university endowment allocations to hedge funds remained relatively consistent between FY2011 and the previous year, the latest Nacubo-Commonfund Study of Endowments (NCSE) report has revealed.

Nacubo is the national association of college and university business officers which represents more 2,500 colleges, universities and higher education establishments in the US.

Released at the end of January, it showed that of those allocating to alternatives, 38% opted for hedge funds in FY2011, compared with 41% a year earlier. Furthermore it showed smaller endowments had greater hedge fund exposure than the larger ones. 

Commonfund Institute MD William Jarvis said when schools with smaller endowments decide to allocate to alternative strategies, hedge funds – or marketable alternatives as they are called in the report - are generally the first choice for three reasons: they can be funded immediately; the endowment may receive some current income; and the strategies are relatively more liquid than private capital.

The report also showed that endowments with less than $25m had an average of 60% of their alternative strategies exposure in hedge funds during FY 2011 compared with the $1bn-plus endowment schemes, which held 38% in the same period.

The hedge fund performance average had remained relatively steady during the last two fiscal years, generating returns of 9.4% in FY2011, and 9.9% in FY2010, it noted.

“Most institutions invest in hedge funds to achieve diversification benefits and to potentially achieve higher returns over the long-term,” Jarvis said, adding: “To have returns in the 9% range in this market is very favourable.”