* Big endowments had 61 percent in alternative investments
* Illiquid funds trapped some U.S. endowments in 2009
* "Rebalancing" to take several years
By Aaron Pressman
NEW YORK, Jan 28 U.S. college and university
endowment funds with at least $1 billion had 61 percent of
their assets in alternative investments like hedge funds last
year, the most ever.
The allocation to alternatives, which jumped from 52
percent in 2008, grew even as the category posted an 18 percent
loss for the year, according to a survey conducted by the
National Association of College and University Business
Officers and the Commonfund Institute, which provides research
and training to endowments.
But over the next few years, big endowments are expected to
reduce their allocation to alternatives, investment analysts
said. That would mark a reversal of the trend of the past 20
years of endowments shifting money away from typical stocks and
bonds to more arcane, sophisticated and illiquid products.
The reversal comes after some of the hedge funds, private
equity offerings and other unusual investments did not perform
as expected during the credit crisis. And the total allocation
may have been artificially boosted for one year as endowments
in need of quick cash sold more liquid stocks and bonds.
The 61 percent level "sounds a little high to be
sustainable," said Michael Crook, investment strategist at
Barclays Wealth in New York who advises endowment managers.
"Around 50 percent for the long run seems more sustainable for
Precisely how much should be committed to alternatives is
the "million dollar question," according to money manager
Mebane Faber, who wrote a book about endowment investing called
"The Ivy Portfolio". "But, in general, [60 percent] is a lot of
equity-like and illiquid exposure."
DIFFICULT TO REBALANCE
Big endowments discovered during the credit crisis that it
can be costly to quickly shed positions in alternative areas
like private equity and venture capital, NACUBO and Commonfund
Harvard University, which suffered a 27 percent loss in its
endowment, tried selling some of its private equity stakes last
year but bidders offered such low prices the sales effort was
"Many of these assets are difficult to rebalance because
they are so illiquid and the money is locked up long-term,"
Verne Sedlacek, president and chief executive of the
Commonfund, said at a news conference in New York.
Significantly reducing the average 61 percent alternative
stake is a process likely to take "several years," Sedlacek
The survey included responses from 842 U.S. institutions,
including 52 with at least $1 billion, and covered the most
recent fiscal year, which ended June 30, 2009.
Within their overall 2009 allocations to alternatives, the
largest endowment funds had 22 percent invested with private
equity funds, 13 percent with private real estate funds, 40
percent with hedge funds, 12 percent in energy and natural
resources, 8 percent in venture capital and 5 percent in
distressed debt funds.
The poor performance of alternative investments doomed
large endowments to a 20.5 percent loss for the year and marked
the first time in a decade that smaller institutions
As NACUBO reported in December, all endowments on average
lost 18.7 percent for the year.
The smallest funds, those with under $25 million, posted a
loss of 16.8 percent. They ended the year with just 13 percent
of their assets invested in alternatives, up from 9 percent at
the end of 2008.
The relative performance of large and small endowments
during the recent crisis was the opposite of what happened in
the last bear market from 2000 to 2002. Alternative assets
posted gains despite the stock market's steep losses in those
years, helping the largest endowments outperform their smaller
(Reporting by Aaron Pressman; Editing by Tim Dobbyn)