Endowments and foundations make significant investments in private equity, but many are concerned about valuations, fund terms, fees and fund sizes.
So says NEPC (www.nepc.com), one of the industry’s largest independent, full-service investment consulting firms to endowments and foundations, in its Q3 2015 NEPC Endowment and Foundation Poll, a measure of endowment and foundation views on the economy, investing and key market trends. NEPC has an office in Charlotte.
The survey was focused on how endowments and foundations invest in and view private equity.
“Compared to last year’s survey, allocations to private equity continue to be a significant investment consideration for endowments and foundations,” said Kristin Reynolds, partner on NEPC’s Endowment and Foundation Practices Group, in a statement.
“What has changed from last year is the degree of concern expressed by respondents about key elements of private equity investing, specifically valuations and access. Potentially in response to these concerns, co-investing appears to be of growing interest as endowments and foundations look for strategies that come with the potential for higher returns, lower fees and offer them greater control over their underlying investments.”
Year over year, endowments and foundations continue to show the importance of an allocation to private equity, with 37 percent of respondents allocating over 10%, according to the current survey. When asked about return projections for their private equity investments, only 15 percent of respondents expect higher returns, while 48 percent noted lower returns, and 37 percent said they expect results in line with previous returns.
When asked what strategies they are considering for the future, the majority of respondents are still looking at growth oriented and opportunistic strategies. Growth Equity, Venture and Buyouts are at the top of investor list. “Given a subdued growth outlook, investors are seeking investments that can play on the current dislocations in the market, such as energy,” said Reynolds.
While respondents continue to feel there are opportunities in private equity, there are also concerns surrounding the asset class. When asked to rank their largest current concern, 58 percent of respondents this year said “valuations,” was their top concern. Other notable concerns about private equity investing include limited access to top funds (40%), fund terms and fees (34%), fundraising overhang (30%) and fund sizes (20%).