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Groups up ante on alternative investments

Date: Thursday, September 28, 2006
Author: Aaron Siegel, InvestmentNews.com

Endowments and foundations plan to increase their already sizeable allocation to alternative investments, yet two-thirds of these organizations admit that it is difficult to measure and manage their risk, according to a survey of the investing behaviors of chief financial officers released today.

The survey was conducted by Pyramis Global Advisors, a Fidelity Investments company.

Alternative investments are defined as hedge funds, private equity, venture capital, and other asset classes such as commodities and active currency.

According to the findings, endowments and foundations, on average, have allocations of 20% to alternatives, which is high when compared to other sophisticated institutional investment pools like pension plans, which typically have less than 6%, according to the survey..

Large endowments and foundations have even more exposure to alternatives - one of every four dollars.

Furthermore, 35% of endowments and foundations plan on increasing their exposure, moving out of traditional U.S. equity and investment-grade fixed income, and migrating assets to hedge funds and private equity.

According to the survey findings, the driver behind this appears to be higher return expectations of 10%for private equity and equity‐like returns of 7.4% for hedge funds, but with an expectation of low volatility.