Foundations Continue Raising PE Allocations

  • Alternatives now 43% of portfolios
  • Positive returns in 2011’s tough market
  • Venture generates highest returns

Foundations last year continued a long-term trend of increasing their investments in alternative strategies, with a particularly significant rise in private equity holdings, sister publication Venture Capital Journal reported.

Overall, alternative asset allocations rose to 43 percent of the average portfolio in 2011, up from 38 percent in 2010, according to a report from investment manager Commonfund, based on a survey of 147 institutions. Private equity represented a quarter of alternative investments in 2011, up from 19 percent a year earlier. Venture capital, meanwhile, accounted for 8 percent of alternatives, up from 7 percent the prior year.

One likely reason foundations are putting more money into private equity and alternatives is that those assets have posted superior returns. Overall net investment returns for foundations in 2011 were slightly negative, impacted by steep declines in international equities, but private equity and venture capital were positive.

Venture assets generated the highest returns of any alternative asset in 2011, with a 14.2 percent return. Private equity was also well in the black, with a return of 8.9 percent.

Foundations of all sizes reported increases in allocations to alternative assets between 2010 and 2011. As for private equity specifically, the largest jumps in allocations came from foundations at the extremes of the spectrum, as those with less than $100 million under management, and those with more than $1 billion, increased investments by 6 percent on average.

(Joanna Glasner is a senior editor for Venture Capital Journal.)