Private Equity Valuations Cited as Principal Concern by Endowments and Foundations, NEPC Survey Finds

Fee Disclosure Shrouded in Opacity; Co-investing Under Consideration

BOSTON--()--NEPC, LLC (www.nepc.com), one of the industry’s largest independent, full-service investment consulting firms to endowments and foundations, today made public the results of its Q3 2015 NEPC Endowment and Foundation Poll, a measure of endowment and foundation views on the economy, investing and key market trends. This survey was focused on how endowments and foundations invest in and view private equity, which was also the focus of NEPC’s Q3 2014 survey.

“Compared to last year’s survey, allocations to private equity continue to be a significant investment consideration for endowments and foundations,” said Kristin Reynolds, Partner on NEPC’s Endowment and Foundation Practices Group. “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.”

Year over year, endowments and foundations continue to show the importance of an allocation to private equity, with 37% of respondents allocating over 10%, according to the current survey. When asked about return projections for their private equity investments, only 15% of respondents expect higher returns, while 48% noted lower returns, and 37% said they expect results in line with previous returns.

When asked what strategies they are considering for the future, the majority of respondents are still looking at growth oriented and opportunistic strategies. Growth Equity, Venture and Buyouts are at the top of investor lists, however, these areas have decreased modestly since the 2014 survey. Conversely, more focus is being given to distressed investments and energy related strategies.

“Given a subdued growth outlook, investors are seeking investments that can play on the current dislocations in the market, such as energy,” said Reynolds.

While respondents continue to feel there are opportunities in private equity, there are also concerns surrounding the asset class. When asked to rank their largest current concern, 58% of respondents this year said “valuations,” was their top concern. Other notable concerns about private equity investing include limited access to top funds (40%), fund terms and fees (34%), fundraising overhang (30%) and fund sizes (20%).

On the question of fees, respondents were bifurcated when asked if they believe General Partners are properly disclosing fee arrangements. Nearly half of respondents said they did not believe fees were being properly disclosed, while 32% believed they were. Notably, 23% answered “not sure,” to the same fee question.

With increased difficulty in finding opportunities, co-investing has been seen by LPs as a way to access good deals with strong GPs, drive down fees, and exercise more control over underlying investments, yet fully 77% of respondents in this year’s survey indicated they’re not currently employing this strategy. When asked if they’re considering co-investing, 49% said “no,” 39% said “no, but considering for the future,” and just 12% said “yes.”

About the Survey

The Q3 2015 NEPC survey was conducted online by the Endowment & Foundation Practice Group in September and October 2015. Copyright is held by NEPC. For the full survey results, contact Caitlin Byrnes at caitlin@waterandwallgroup.com.

About NEPC, LLC

NEPC, LLC® is an independent, full service investment consulting firm, providing asset allocation, manager search, performance evaluation, and investment policy services. It works with institutional investment programs and high net worth clients on both an advisory and discretionary basis.

The Endowment and Foundation Practice Group services 116 endowment and foundation retainer relationships, representing assets of $62 billion, from offices in Atlanta, Boston, Charlotte, Chicago, Detroit, Las Vegas and San Francisco. Learn more at http://www.nepc.com/clients/endowments_foundations and www.twitter.com/NEPC_EandF.

Contacts

Water & Wall Group
Caitlin Byrnes, 212-343-2363
caitlin@waterandwallgroup.com

Release Summary

NEPC, one of the largest investment consulting firms, today released their Q3 2015 Endowment & Foundation Poll, a measure of endowment and foundation views on the economy, investing and market trends.

Contacts

Water & Wall Group
Caitlin Byrnes, 212-343-2363
caitlin@waterandwallgroup.com