The vast majority of North American endowments intend to increase or maintain their private equity exposure in the long and short term, according to a report from Preqin.
Sixteen percent intend to increase their long-term exposure and 78% plan to maintain it; for the short term, about 14% are looking to increase their exposure over the next 12 months, while 74% will maintain.
Fifty-five percent of North American endowments already have made private equity commitments this year, and 58% expect to make their next private equity commitment before the end of the year.
Endowment investor appetite has increased drastically since before the financial crisis — the average asset allocation increased to 13.2% in 2012 from 8.4% in 2007.
Endowments account for 8%, or $110 billion, of aggregate private equity capital, up from 6% in 2009, the last time Preqin released this report.
Executives at endowments cited a number of challenges in operating a private equity program in the current financial climate. About 27% view gaining access to top-quartile managers as the biggest challenge, followed by liquidity, at 20%, and high returns and market volatility, 16% each.
Private equity interest is centered on North America as 72% said it presented the “most attractive” investment opportunities. However, 31% stated Europe presents “attractive” opportunities and 76% said they are not currently avoiding any regions.
While private equity investments are up from pre-crisis levels, there have been a number of changes in the past five years, said Alex Jones, senior analyst and spokesman at Preqin. Investors are more cautious in fund selection, the fundraising market is more competitive, there are fewer “megafunds” and limited partners hold more power, resulting in more concessions from general partners, he wrote in an e-mail.
“The fundraising market is extremely competitive with several years' worth of funds still on the road,” Mr. Jones said. “At present, there are over 1,900 private equity funds of all types in (the) market seeking capital, which is a record.”
Preqin tracks 473 endowments worldwide that invest in private equity, of which 91% are in North America.