08/02/2012 Author: Elana Margulies

Smaller endowments allocated more in 2011

Smaller endowments allocated more to hedge funds than their larger peers during fiscal year (FY) 2011, 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 than 2,500 colleges, universities and higher education establishments in the US.

The survey, released at the end of January, showed that during FY 2011, the average $25m endowment had 60% of their alternative investment portfolio in hedge funds and 8% in private equity, compared with the $1bn-plus investors, who had 34% in hedge funds and 26% in private equity.

The $15m Science Museum of Virginia Endowment is one institutional investor that has opted for hedge funds initially over other alternative investment types. “There is a growing trend among small and mid-sized endowments to replicate the asset allocations of their larger peers in the industry,” said Don Steinbrugge, investment committee member.

“Small and mid-sized endowments usually increase their hedge fund allocation first because of the better liquidity terms than private equity and real estate,” he added.

The latest NCSE findings remained virtually unchanged from FY 2010 when the average $25m endowment had 59% in hedge funds and 10% in private equity, while the $1bn-plus funds had 38% in hedge funds and 25% in the less liquid alternative investment class.

Commonfund Institute MD William Jarvis said when smaller endowments decide to allocate to alternative strategies, hedge funds 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.