Foundation and endowment investment officers remain committed to private equity as an asset class, although valuations remain a concern, a quarterly NEPC survey said.
Thirty-seven percent of respondents in an online survey conducted in September and October said their current target to private equity is more than 10%, while 53% have targets of less than 10%, and the rest of the respondents do not have any target to private equity.
Fifty-eight percent of respondents said their biggest concern with private equity is current valuations, while 40% were concerned with limited access to top funds, and 34% were concerned with fund terms and fees. In last year's third-quarter survey, only 29% of respondents voiced their concern with current valuations, and only 23% and 17% were concerned with limited access and fund terms, respectively.
Respondents could choose more than one response.
“Allocations to private equity continue to be a significant investment consideration for endowments and foundations,” said Kristin Reynolds, partner in NEPC's endowment and foundation practices group, in a news release. “What has changed from last year is the degree of concern expressed by respondents about key elements of private equity investing, specifically valuations and access. Potentially in response to these concerns, co-investing appears to be of growing interest as endowments and foundations look for strategies that come with the potential for higher returns, lower fees and offer them greater control over their underlying investments.”
Respondents also expect lower returns going forward than in the survey conducted for the third quarter of 2014. Forty-eight percent expect lower returns, compared to 42% last year; 37% expect returns to remain in line with past returns, compared with 48%; and 10% expect higher returns, compared with 15%.
