Yale University, whose endowment is the top performer in the U.S., is cutting its target allocations in hedge funds to allow for bigger stakes in private equity and real estate, the asset classes that hurt the fund last year.

Yale boosted the fund's private-equity target to 26% from 21%, and its real assets allocation, which includes real estate and commodities, to 37% from 29%, at its June 2009 investment committee meeting, according to a report released last week.

The university, the second-richest after Harvard University, generated an average annual return of 12% in the decade through June, beating Harvard's 8.9% gain.

"Alternative assets, by their very nature, tend to be less efficiently priced than traditional marketable securities, providing an opportunity to exploit market inefficiencies through active management," the report said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.