More than 50 percent of endowment and foundation managers are bullish on private equity (PE) investments while the vast majority of those surveyed expect domestic equities to be relatively flat or will taper off this year, returning single digits.
Almost half of those surveyed (45 percent) expect domestic equities to be relatively flat in 2019 and almost as many (38 percent) expect domestic equities to “taper off a little, but still return in the mid-to-high single digit range.”
Only 4 percent of those surveyed are bearish on PE during the next 12 to 24 months, expecting it to underperform, while 45 percent are neutral.
A majority of respondents (53 percent) think that the U.S. economy is in a better place compared to a year earlier while nearly one-third (32 percent) said it is in the same place. Only 15 percent said it is worse.
Almost half of those surveyed identified geopolitical tensions (23 percent) and rising interest rates (23 percent) as the biggest threats to portfolios during the next 12 months, followed closely by a U.S.-China trade war (19 percent) and political uncertainty (17 percent).
Forty-seven percent said that they had no plans to adjust their portfolio allocation due to a downturn in emerging markets. The same proportion said that although they did not plan to make changes, they were monitoring the situation and would make a change if volatility continues.
What keeps endowment and foundation managers up at night? The most significant concerns were meeting or exceeding spending plus inflation and falling short of return targets in the near term. Less significant was increasing demands on staff and time commitments and priorities of investment committee members.
When it comes to private equity (PE) and private debt (PD), more than one-third of those surveyed said that 6 percent to 10 percent of their portfolio is dedicated it. Some 28 percent report 11 percent to 20 percent of their portfolio is focused on private equity and private debt. One in 10 estimated that 21 percent to 30 percent of their portfolio emphasized PE and PD and 2 percent said exposure is greater than 30 percent.
Sixty percent are concerned about fees for PE and PD but no more or less than normal. Fees are a greater concern than ever before for 40 percent due to subdued return expectations.