Hedge Funds Market to Endowments and Foundations Again

May 2, 2011

Endowment funds and foundations that may have dialed back their allocations to hedge funds during the financial crisis are showing increased interest again.

Agecroft Partners, a hedge fund consulting and third party marketing firm, has seen a significant increase in the search activity for endowments and foundations over the past six months, and expects the trend to continue, according to an article in the International Business Times. In fact, Agecroft sees the trend migrating to mid-sized endowments and foundations, who haven’t traditionally invested as much in hedge funds.

From the end of 2008 to fourth quarter 2010, many large endowments and foundations were buffeted by a lack of liquidity and the suspension of redemptions among many of their hedge fund managers. Now, however, with more stable markets and better overall returns, it has freed up capital and perhaps boosted investor confidence to the point where they are willing to invest and even explore new managers.

Three years ago the market for endowments and foundations was split between those with more than $1 billion in AUM who had in-house teams of investment advisors and allocated heavily to alternative investments. Versus endowments and foundations with less than $1 billion, whose assets were managed part-time by the treasurer or controller with help from a volunteer investment committee. This second group may have also used a local investment firm to invest the assets in traditional stocks and fixed income securities.

Now, however, mid-sized endowments and foundations (in the $100 million to $1 billion range) are changing their approach. Many are now hiring a full-time Chief Investment Officer to oversee their portfolios and are allocating greater amounts to alternatives. Many of these CIOs are recruited from large pension funds. In addition, some mid-sized endowments and foundations are choosing to outsource this CIO function to firms such as Investure, High Vista, Perella Weinberg Partners, Strategic Investment Group, Makena Capital and others.

It all presents a fertile opportunity for hedge fund managers to target with their marketing efforts and hopefully establish relationships with both mid-sized foundations as well as the outsourcing suppliers.

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