BOSTON, September 28, 2006 - A survey of the investing behaviors of CFOs at endowments and foundations found that these organizations plan to increase their already sizeable allocation to alternative investments, yet two-thirds readily admit that it is difficult to measure and manage their risk. Alternative investments are defined as hedge funds, private equity, venture capital, and other asset classes such as commodities and active currency. In this context, the term "hedge fund" is a catch-all term that encompasses a broad range of privately-offered products that employ a variety of investment strategies and techniques.

The industry-wide survey was conducted by Pyramis Global Advisors, a Fidelity Investments company. It is a comprehensive view of asset allocation, risk management, manager selection processes, implementation issues, and other strategic issues for management.

"The survey has a host of interesting data points," said Peter Chiappinelli, CFA, Senior Vice President of Strategic Services at Pyramis Global Advisors, "but when we string them together, an ironic tension emerges: endowments and foundations confess it is difficult for them to measure the risks of the alternative investment strategies they're increasingly embracing."

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%. 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 US 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.

However, the survey identified three top obstacles to effective risk management for endowments and foundations:

1) A lack of transparency

2) A self-admitted lack of internal expertise

3) The data that they do receive is too dated to be useful

"Endowments and foundations are basically saying to the alternatives community, ‘We need better transparency, we need help in understanding the risk profile of the portfolio, and we need information in a more timely fashion,'" says Chiappinelli. "Endowments and foundations are sophisticated investors, which makes their frustrations regarding risk management so interesting."

The Pyramis survey was intended to gauge a host of other important issues for the E&F community. The manager selection portion covered items such as the typical number of managers an E&F uses, the time frame for evaluation, and key hiring criteria. The investment implementation section covered rebalancing policies, the use of consultants, and detailed breakdowns on the sub-classes of private equity and hedge funds. Beyond the pure investment issues, the survey also measures typical spending patterns, fundraising activities, outsourcing, and more. "We expect endowments and foundations to use the Pyramis Survey for benchmarking", says Jeffrey Smith, CFA, Executive Vice President, Sales and Consultant Relations at Pyramis. "They can use the findings to compare themselves to their peers."

The Research Report of Endowments & Foundations is the first industry-wide study by Pyramis Global Advisors of these types of investments. Data was collected via an internet questionnaire mailed to finance and investment decision makers at 77 of the largest endowment and foundation funds between November 1, 2005 and November 30, 2005. Of the respondents, 44 percent had between $15 and $200 million in assets and 56 percent had more than $200 million in assets. Endowments accounted for 48 percent of responses while Foundations represented 52 percent.

Pyramis Global Advisors, a Fidelity Investments company, is an investment management firm focused on serving institutional investors such as corporate and public retirement funds, endowments, foundations, and non-U.S. investors. Pyramis offers active and risk-controlled domestic equity, international equity, fixed income, real estate, and alternative disciplines, which includes products using equity market neutral strategies. As of June 30, 2006, assets under management total approximately $129 billion.

Fidelity Investments is one of the world's largest providers of financial services, with custodied assets of more than $2.7 trillion, including managed assets of $1.3 trillion as of August 31, 2006. Fidelity offers investment management, retirement planning, brokerage, and human resources and benefits outsourcing services to more than 22 million individuals and institutions as well as through 5,500 financial intermediary firms. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, one of the largest mutual fund supermarkets and a leading online brokerage firm. For more information about Fidelity Investments, visit www.fidelity.com.

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