Overview of US foundations with an active preference for hedge funds

by Amy Bensted

  • 21 Jun 2010
  • HF

US foundations are one of the more experienced categories of institutional investors in hedge funds, with many such investors having been active in the asset class since the turn of the 21st century. As a result, a large proportion of this investor group, 64% are actively investing in the asset class today, with a further 4% of all US foundations considering making maiden investment in hedge funds in the next 6 -12 months.

On average, foundations allocate 14.5% of total assets to hedge funds and have a target allocation of 16.3%. With 43% of US foundations currently under their target allocation to hedge funds, this sector of the institutional market has the potential to inject large additional sums of money in the asset class over the course of the next 12 months. US foundations are relatively conservative in their approach to hedge fund investment, with 80% of such investors using funds of funds to some extent to gain exposure to the asset class and over half invest in funds directly. Many US foundations invest both directly and via funds of funds when constructing their portfolios. 45% of foundations use this dual approach, 35% invest solely in funds of funds and the remaining 20% only invest directly into hedge funds.

Long/short equity, macro and managed futures are popular strategies for foundations. However, over 30% of US foundations take a more opportunistic approach to selecting hedge fund strategies and will diversify their portfolios according to market foundations or the opportunities available.

US foundations have a preference for investing in domestic hedge funds but over 50% will search globally for the best opportunities in the arena.

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