NEPC’s Endowment and Foundation Practice Group is proud to present the results of our Q3 Survey polling the Endowment and Foundation Community on their thoughts, concerns and implementation of their private equity allocation within their investment program.
“Endowments and foundations in the US continue to access private equity as a meaningful component of their investment portfolios. However, recent investor activity in private equity indicates endowments and foundations have increasing concerns regarding prospective returns, current valuations and access to top funds,” said Cathy Konicki, Partner and Head of NEPC’s Endowment & Foundation Practice Group.
On the question of their outlook for private equity, only 10% of respondents reported higher expected returns going forward, with the remainder believing that returns will be the same or lower. The lower return outlook was driven by a number of issues, as 29% felt current valuations was the top concern, while 23% felt limited access to top funds was an obstacle. Fund terms and limited opportunities rounded out the majority of concerns at 17% and 14%, respectively.
When asked where they are targeting future commitments, 57% said growth equity; 47% said buyouts and venture, respectively; and 24% will look to secondaries. The move away from more conservative, J-curve-mitigating strategies to growth-oriented strategies reflects a shift in investor sentiment around the longer term economic outlook.
When asked where they expect 2014 private equity commitments to be versus projections, 65% noted “at projected levels,” 26% said “below projections” and nine percent indicated “above projections.” Against this backdrop, 31% of respondents have experienced reductions in commitment levels or access to top funds, however, only 19% have adjusted their private equity review or approval process to address a more competitive fundraising environment.
From a geographic perspective, 33% of respondents said they will be evaluating private equity exposure within emerging markets. Of the specific geographies, 52% indicated they will be looking at China-only strategies, 48% responded that they’re looking to Asia ex-China; 22% each to Latin America, Eastern Europe and Middle East / Africa; and 39% to “all of the above,” which indicates that investors see opportunity across all emerging markets, not just Asia. From an implementation standpoint, 48% of endowments and foundations plan to implement their exposure to emerging markets private equity through funds of funds, 30% through direct investments, and 22% from a combination of funds of funds and direct investments.
Please click here for results to the survey.