Foundations, a key and growing source of capital for hedge funds, account for over 18% of all hedge fund investors worldwide, according to Preqin’s Hedge Fund Investor Profiles. Ninety percent of these are based in the US.
On average, US-based foundations have been investing in hedge funds for 11 years. Over this time, their hedge fund allocations have steadily increased. In 2010, the average allocation stood at 14.5%; this grew to 16.9% in 2012. Currently, US-based foundations allocate approximately 18.4% of their total assets to hedge funds.
Despite the fact that many foundations have become experienced investors, they are relatively conservative in terms of manager selection. This is demonstrated by the fact that 72% of US-based foundations are unwilling to consider investing in emerging manager hedge funds, instead requiring a minimum four-year track record, on average.
US-based foundations have shown a growing appetite for hedge funds over a sustained period of time and account for 10% of all capital invested in hedge funds today. With many US-based foundations likely to continue to invest more capital in hedge funds going forward, the volume and experience of such investors means they will remain a crucial source of capital for hedge fund managers.