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long time horizon and diversification. It realized it could reduce risk and short-term volatility and enhance return potential.

The broad asset allocation target was 75 to 80 percent for equities and 15 to 25 percent for fixed income. Within equities, there was a 30 percent target for alternative investments, 15 percent for international equities, and 10 percent for absolute return strategies, says Thomas Kannam, director of investments. Kannam arrived at Wesleyan from Dartmouth's endowment in 1998.

Wesleyan started allocating to hedge funds in 1998. (Absolute return is the term Wesleyan uses.) The objectives were to achieve diversification, enhance returns, and reduce risk.

The $580 million endowment allocated to seven hedge funds representing different styles that are uncorrelated to broad stock market exposure. Each of the seven groups were given an initial $5 million allocation. Since that time, three of the seven funds have received additional allocation. The styles receiving allocations were event arbitrage, distressed, U.S. long/short, Japan long/short, and macro.

Managers who've received additional assets include Peter Schoenfeld Asset Management. Kannam says the manager does a lot of European merger arbitrage deals which he likes. Cerberus International, which focuses on distressed, also received additional assets. The Black Bear Fund (U.S. long/short) is the third manager receiving a larger allocation.

The 1999 NACUBO survey indicates Wesleyan also allocates to Rosehill, RS Investment Management, and SCI Capital Management.

Kannam says the endowment had met with Tiger Management but passed because the firm was so big. Kannam does believe that size impacts strategies, and looks at size carefully, especially if a manager is over $1 billion.

Wesleyan does its research and manager due diligence internally. While it is a base client of Cambridge Consulting and gets those reports, Wesleyan does hedge fund analysis in-house. The in-house team includes Kannam himself, an investment professional, an analyst, and two support people.

Similarly, Wesleyan is not so keen on taking a fund of funds route at this time. "We've built a portfolio and want to see how it goes. We can always do a fund of funds later, if it is appropriate," says Kannam. "We do feel we can do it directly on our own."

Usually Wesleyan will start with a specific strategy in mind. From