When it comes to private equity returns, not all institutional investors are alike.
Endowments earn an average annual return that's almost 14% higher than the average private equity investor, a new paper asserts.
Even after allowing for the fact that many endowments invested in private equity earlier than did pension funds, endowments still outperformed other private equity investors by 8% to 10%, the paper said. It was written by Josh Lerner, the Jacob H. Schiff Professor of Investment Banking at Harvard Business School; Antoinette Schoar, associate professor of finance at the Sloan School of Management at the Massachusetts Institute of Technology; and Wan Wong, a Harvard doctoral student.
"Look at the data. Performance of different investors is clearly different. What universities get from private equity is more than other investors," Mr. Lerner said in an interview. "If you look at corporate pension funds and some other institutional investors, they don't do any better than if they threw darts at a dart board."
Plus, endowment investment tends to affect private equity fund performance, according to the study: The more endowments investing in a private equity fund, the better the fund performance.
The authors examined 1,398 funds. Performance data, which was from Private Equity Intelligence Ltd., London, covered the period from 1991 through 2003.