NEPC, one of the larger investment consulting firms to endowments and foundations, has published its Q3 2016 NEPC Endowment and Foundation Poll that measures endowment and foundation views on the economy, investing, and market trends. As with the Q3 Polls in 2014 and 2015, this survey focused on how endowments and foundations invest in and view private equity.
According to the survey, 43% of respondents are increasing their allocation to private equity and 53% are maintaining current exposure, with only 4% decreasing. As for which strategies are generating the most interest, investors are most attracted to Growth Equity (47%), Venture Capital (44%), and Buyouts (39%). This newfound attention is interesting because for the past two years, very few endowments and foundations expected private equity to generate higher returns (2014, 10%; 2015, 15%).
“After a year of strong performance, we’re not surprised to see endowments and foundations refocus their interest in private equity,” said Kristin Reynolds, Partner in NEPC’s Endowment & Foundation Practice Group. “We expect private equity will continue to attract assets as long as macroeconomic trends continue to drive lower expected returns in other classes. Given increased investor interest, it will be even more important to identify, vet, and select strong private equity managers.”
As for their outlook on private debt strategies, more than half of respondents (56%) are considering or have already invested in opportunistic credit, while 49% expressed the same view of distressed credit, and 39% for direct lending.
Click here for an infographic that highlights the survey’s primary findings
Valuations continue to be a top concern for private equity investors, however, with 56% of respondents citing it as their top concern, down slightly from the Q3 2015 survey (58%). Nearly a quarter (24%) think private equity generally is overvalued and 60% said current valuations will impact their future commitments. Investors’ second biggest concern with private equity was fund terms and fees (42%).
Other top findings include:
- 67% are maintaining their exposure to fixed income; no respondents are increasing exposure.
- US economic confidence is rising; 87% say the economy is in the same place or a better place than this time last year. This is a dramatic increase from Q2 2016 (50%).
- Most see a slowdown in global growth as the greatest threat to near-term performance (63%).
The Q3 2016 NEPC survey was conducted online by the Endowment & Foundation Practice Group in September/October 2016.
NEPC has offices in Atlanta, Boston, Charlotte, Chicago, Detroit, Las Vegas and San Francisco, and services 118 endowment and foundation retainer relationships, representing assets of $57 billion as of June 30, 2016 (www.nepc.com).
© 2016 Private Equity Professional • 10-25-16
