(April 6, 2011) — The $920 million University of Kentucky Endowment Fund is set to double its target allocation to hedge funds.

The move is in line with decisions by other institutional investors — namely large US pensions — that have boosted direct hedge fund allocations to tackle underfunding. The increasing attractiveness of the asset class is reflected by a recent report from Preqin that revealed institutional investors now constitute the largest piece of the hedge fund capital pie.

According to HFMWeek, the Kentucky university, which started investing in hedge funds in 2009, approved a recommendation to double its target hedge fund allocation to 20% — a percentage suggested by consultant RV Kuhns & Associates last year following an asset allocation study. The heightened hedge fund target was shared between the fund’s three existing hedge fund managers: Grosvenor, Gam and Berens. The revised investment policy aims to “reduced the projected risk of the endowment,” HFWeek reported.

Some funds have been slower to allocate to the sector. In an attempt to further diversity its assets, New York City’s roughly $23 billion Police Pension Fund, with a funding ratio of about 60%, approved its first hedge fund investment in March. “Consistent with the long-term objectives of providing reliable returns, reducing investment volatility, and capitalizing on the changing market landscape, the New York City Comptroller’s Office has recommended, and the Police Pension Board approved, an initial allocation to hedge funds,” New York City Chief Investment Officer Larry Schloss confirmed in a statement. “Subject to satisfactory negotiations, we expect to initiate a hedge fund-of-funds program which is to be followed by a series of direct investments in hedge funds. This strategy builds on Comptroller John C. Liu’s and the Board’s commitment to protecting pensioners and taxpayers.”

In February, the $84 billion State of Wisconsin Investment Board (SWIB) made its first-ever allocation to hedge funds, allocating $100 million to Capula Investment Management LLP. The revised strategies are part of SWIB’s new allocation targets for its $64.6 billion core fund, which the board adopted last January. The target allocation incorporates 28% US equities, 25% international equities, 26% fixed income, 7% TIPS, and 6% each private equity, real estate, and absolute return and multiasset strategies, according to its strategy submitted by Chief Investment Officer David Villa and Executive Director Keith Bozarth.