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NEPC: Endowments, foundations looking to boost private equity, opportunistic investments

The majority of endowment and foundation investment officials intend to maintain their current asset allocation to all strategies in 2017, but a significant minority plan changes in certain areas.

About 42% of respondents said they intend to increase their weightings to private equity/credit; 32% will up their allocation to opportunistic strategies; 29% will add to real estate/real assets investments; and 23% will increase investment in emerging markets equity, showed NEPC's fourth quarter survey of endowments and foundations, released Monday.

On the other side, 32% of respondents said they will lower exposure to fixed income, while 30% said they will decrease their hedge fund allocation, the largest decreases indicated in the survey. More endowment and foundation investors will put money back into action, with 18% of respondents indicating they will lower their cash allocation; 17% will drop the level of investment in domestic equity; and real estate/real assets and international equity each will be cut by 12% of respondents.

The average asset allocation as of Dec. 31 was 29% domestic equity, 19% fixed income, 17% international equity, 9% hedge funds, 7% private equity/credit, 6% each emerging market equity and real estate/real assets, 3% other, 2% opportunistic and the rest in cash. Despite their intention to lower their asset weighting to U.S. equity, 26% of endowment and foundation executives predict that the asset class will have the best returns in 2017, followed by private equity/credit (15%); emerging market equity (13%) and opportunistic strategies (8%).

Endowment and foundation investment officers also were asked by NEPC about subasset classes they found attractive: 38% of respondents named small-cap emerging markets equity; direct lending, 36%; venture capital, 24%; tactical trading, 23%; and macro- or currency-related, 18%.

Respondents were much more optimistic about the U.S. economy at the end of the fourth quarter, with 64% indicating the economy was healthier, compared with 25% who held that opinion three months earlier.

“Despite everything that has happened over the last several months, endowments and foundations seem to be feeling pretty good right now. They are by no means carefree and there are certainly some headwinds on the horizon, but the results indicate a strong sense of economic optimism that we haven't seen in quite some time,” said Cathy Konicki, partner and head of NEPC's endowment and foundation practice group, in a news release accompanying the report.