This compared to an average total return of – 4.9 % in FY 2002, and three-year and five-year total average returns of 1.6% and 3% respectively, a Commonfund news release reported. Institutions reported an average annual total return of 18.1% for their Defined Benefit Pension Funds, compared to – 6.4% in FY 2002, and three- and five-year returns of 0.9% and 2.9% respectively.
The responding organizations reported 54% of average total investment pool assets as Operating Funds, 24% as DB Pension Funds, and 3% as Insurance Reserves.
Within total operating fund assets, respondents reported allocations to fixed income (39%), domestic equities (37%), international equities (9%), alternative strategies (8%), and cash/short-term/other (7%). Within domestic equity, organizations reported allocations to large cap (54%), index (17%), small cap (15%), and mid cap (14%). Twenty-one percent of institutions reported a decrease in allocations to fixed income.
Roughly two-thirds (67%) of operating fund assets were allocated to marketable alternatives by total organizations of all sizes. These included Hedge Funds (Absolute Return, Market Neutral, Long/Short and Event-driven Derivatives). Twenty-nine percent overall and 51% of the largest organizations reported they expect to increase their operating fund allocations to alternative strategies.
Seventy-eight percent of operating fund allocations and 77% of defined benefit fund allocations to marketable alternatives were invested directly with managers. Among participants that provided alternatives data for operating funds and defined benefit pension plans, the greatest concern regarding their marketable alternative investments is risk transparency, with an average score of 3.8 on a five-point scale. Oversight/due diligence was the second highest concern, followed by individual manager risk and operation/business risk.
Eighty-five percent of the participating organizations overall reported the use of consultants. This varied by size of organization, with 92% of the largest organizations and 80% of the smallest organizations reporting they used consultants.
The study focused on the management, investment and operational practices of 204 nonprofit healthcare organizations with total assets of $129 billion, for the period ended December 2003.
More information about the Commonfund is at www.commonfund.org .
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