(September 27, 2013) — The largest foundations in the US have reduced their allocation to private equity over the past year and many have opted to outsource their investments, research has shown.
Foundations with more than $500 million reduced their allocation to funds offering access to leveraged buyouts, mezzanine debt, M&A, and international private equity from a 27% of their portfolios at the end of 2011 to 22% at the end of last year, Commonfund Institute data showed.
Smaller foundations—with between $101 million and $500 million—reduced their allocations slightly, from 20% to 19%, while the smallest investors retained an 11% stake of their alternative portfolios.
These investments gave foundations some of the worst returns over the year, contributing 7.7%, which lagged US equity returns of 17.5%.
The overall allocation to alternatives by this group fell from 44% to 42%, but some hedge fund strategies gathered more assets, including market neutral and global macro approaches.
The core elements of these foundations’ portfolios were tweaked by single digits.
The number of foundations reporting that they had outsourced investment functions rose considerably, the Commonfund Institute found. From 30% saying they used a third party to make investment decisions in 2011, some 38% reported the same just 12 months later.
The use of consultants also rose from 76% employing a third party adviser in 2011, to 80% by the end of last year.
Of the largest funds, 72% reported having a CIO in position, but this number fell to 23% when taking the range of foundation sizes into account.
The Commonfund Institute surveyed 140 institutions across the US.
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