FIN News: Opportunities to Improve Endowment Returns May Come As Private Markets Reset: Consultants
NEPC’s latest Insight “How Should The NACUBO-TIAA Report Impact Endowment Finances?” was recently covered in an article by FIN News to discuss our findings. View the article on FIN News’ site here.
The current state of private markets can create opportunities for smaller endowments to incorporate private equity into their portfolios, according to investment consultant NEPC.
“Disruption in private markets may open up opportunities to endowments. In our view, private markets will continue to reset throughout 2023, and lower valuations may provide attractive entry points,” the firm said, in a recent insight post that noted the financial success of larger higher education endowments is mainly due to private equity market exposure.
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While disruptions to private markets such as the recent bank closures have led to uncertainty, NEPC does not feel there is risk in the banking system but rather opportunities that may open up to endowments.
“Overall, banks are well capitalized. We think the recent closing of Silvergate Bank, Signature Bank and Silicon Valley Bank will prove to be isolated liquidity events that are largely the result of asset-liability mismatches relative to the deposit profile for each bank,” NEPC said.
“Historically, recession- and recovery-era vintage years have created some of the best opportunities to deploy capital to private equity,” according to the firm.
FIN News: Greater Alts. Allocations Help Mega Endowments Rise Above Smaller Peers: Report
NEPC’s “Mega Endowment FY 2022 Returns” report was featured in a recent FIN News article to discuss our findings. View the article on FIN News’ site here.
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There was a case to be made for maintaining allocations to public equities and fixed-income securities coming out of COVID-19, which challenged the merits of diversification, according to Senior Consultant Colin Hatton.
“Higher education endowments have been reducing exposure to diversifying alternatives over the past several years. However, in 2022, we saw that the larger endowments that maintained large allocations to real assets, private equity and hedge funds were rewarded due to macroeconomic factors, mainly high-interest rates and inflation,” Hatton said, in e-mailed commentary.
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“As we look ahead, we expect that real assets and active hedge fund strategies will continue to play an important role in client portfolios, but the near-term differential between public and private market performance should narrow as we head into 2023 and beyond,” Hatton said.
FIN News: Nonprofit News Special Report: 2023 Alternative Investments Outlook
NEPC’s Kristin Reynolds was quoted in a recent FIN News article to discuss vintage years and real estate markets. View the article on FIN News’ site here.
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The historical performance of funds from recessionary periods was one reason that investment consultant NEPC is advising clients to commit to 2023 vintage funds, even if they have concerns about their portfolio’s liquidity, according to Kristin Reynolds, partner and practice leader, endowments and foundations.
“Historically, some of the best vintage years were when markets had a little more distress. If clients are concerned about liquidity, we’ve said to reduce the level of investments to each manager in their portfolio. We think the private equity GPs will start feeling pressure to deploy and they’ll find opportunities,” Reynolds said.
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NEPC’s Reynolds sees that real estate markets are varying based on property type.
“The core real estate funds have seen marks of 10% to 15%, and we’re seeing positive appreciation of industrial, but that’s really off set by off ice and retail, based on changing market dynamics. So, you are getting the inflation hedging, but maybe more so in the broadly diversified funds,” she said.
The Denver Foundation: Aligning Assets with Mission
It might seem a modest shift. But for TDF, it was the start of an ambitious strategy to use both its investments and its grantmaking to advance the goals at the heart of its philanthropic mission: diversity, equity, and inclusion.
