NEPC: Endowments, foundations bullish on private equity for next year or two

Slightly more than half of endowments and foundations are bullish on private equity for the next 12 to 24 months, according to a year-end survey from investment consultant NEPC.

In the survey conducted online in November of NEPC's endowment and foundation clients, 51% of respondents said they believe private equity will outperform other asset classes over the next 12 to 24 months, while 45% are neutral regarding private equity performance and only 4% believe private equity will underperform other asset classes.

"Given the aging U.S. equity bull market and the need for endowments and foundations to meet their expected rate of return, it's not surprising to see them investing in areas such as private equity," said Scott F. Perry, partner and member of NEPC's endowments and foundations practice, in a news release announcing the survey results. "With volatility re-emerging after a fairly calm environment for the last few years, alternative asset classes in general have been generating interest among institutional investors."

When asked which private equity strategy they believe will deliver the strongest returns over the next five to 10 years, 26% of respondents said special situations will do so; while 17% each said growth equity and regional strategies; 15% said venture capital; 13%, buyouts; 9%, private debt; and the rest said secondaries.

When asked which private equity strategy they would be de-emphasizing in the near term, 23% said venture capital; 19% said secondaries; 17% each, buyouts and regional strategies; 13%, private debt; 9%, special situations; and 2%, growth equity.

A significant majority, 60%, said fees are always a concern, but not any more than usual, while 40% said muted return expectations made fees a greater concern than ever before.

Respondents also seem relatively agnostic regarding domestic equity expectations for 2019, with 45% saying they expect the asset class to be relatively flat, while 38% said some tapering is expected but they believe returns will wind up in the mid- to high-single-digit range. Eleven percent expect moderately negative returns, 4% are still bullish and 2% expect significantly negative returns.