America's college and university endowment funds recorded an 11.9 percent return last year, aided by big bets on alternative investments like hedge funds but helped even more by traditional stock and bond selections.

The allocation to alternative investments, a decades-long favorite with college and university foundations, grew again and now accounts for more than half of all invested assets. The appetite for U.S. stocks, meanwhile, continued to shrink, according to a survey conducted by the National Association of College and University Business Officers and the Commonfund Institute, which provides research and training to endowments.

One of the lessons that came out of (the financial crisis and recession) is that endowments are still looking to reduce volatility by owning more alternatives and less equities, Verne Sedlacek, president and chief executive of the Commonfund, said at a news conference.

Ironically though, recovering stock markets provided endowments with their biggest shot in the arm last year, as endowments' stock portfolios gained 15.6 percent in the 12 months to June 2010, the survey found.

Alternative investments rose 7.5 percent after having lost 18 percent in 2009. Their poor performance was a drag for endowments' overall returns in 2009, leaving them with an average loss of 18.7 percent.

The survey included responses from 850 institutions.

In 2010, college and university endowments raised their allocation to alternatives to 52 percent from 51 percent.

These often more sophisticated and sometimes less liquid products have a reputation of delivering better returns in all types of markets and have been especially popular with the biggest endowments. Schools that invest more than $1 billion invested 60 percent in alternatives, down only a smidgen from 61 percent in 2009.

Harvard University, the country's biggest endowment with $27.6 billion, for example, pioneered alternative investments but altered its strategy some after an embarrassing 27 percent loss in 2009. It rebounded in 2010 with an 11 percent gain.

At the same time investors' tastes for traditional stock and bond portfolios contracted to 15 percent from 18 percent. Endowments cut their allocation to fixed income investments to 12 percent from 13 percent.

While rallying equity markets helped boost returns in 2010, the study found that spending also inched up and that benefactors, while making more gifts again, were still falling shy of giving levels seen before the crisis.

We've had a great 2010 but we are still not at all out of the woods and there are still many pressures on higher education, Sedlacek said.

Schools spent an average 4.5 percent of their endowments, the study found, noting that 45 percent of the participants said they raised their spending rates, while 27 percent cut it and 25 percent said they spent the same amount.

(Reporting by Svea Herbst-Bayliss, editing by Matthew Lewis)