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August 16, 2016

Survey Finds Big Nonprofit Investors Souring on Hedge Funds

Concerns over high fees and lagging returns are prompting endowments and foundations to cut back on investments in hedge funds, Bloomberg writes, citing a new survey of large nonprofit investors.

More than a quarter of organizations polled last month by NEPC, a Boston consulting firm that manages $57 billion in assets for big nonprofit institutions, said they have reduced hedge-fund investments or were considering doing so. About a quarter of the 59 respondents reported no hedge-fund exposure in their portfolios, compared to 2 percent two years ago. The shift follows a similar rethink by pension funds and comes as college endowments anticipate losses for the fiscal year that ended in June.

Hedge funds, which typically charge a 2 percent management fee plus 20 percent of profits, posted an average return of 1.3 percent this year through July, against 7.7 percent for the S&P 500. “The last several years have been difficult for the industry, and investors are starting to look very closely at how hedge funds can work for them,” said Cathy Konicki, who oversees NEPC’s endowment and foundation business.