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Endowment Plans Have an Increased Appetite for Private Equity

by Louise Weller

  • 14 Feb 2012
  • PE

The onset of the financial crisis in 2008 and the continued volatility in the financial markets of late has caused many investors to re-evaluate their private equity portfolios. Endowments have historically been a prominent investor in the asset class and Preqin currently tracks 439 endowment plans that actively invest in the private equity, or are considering doing so, representing 11.6% of the total investors tracked by Preqin.

From 2007, endowment plans have steadily increased their allocations to the private equity asset class year on year, from an average allocation of 8.3% of total assets in 2007 to 12.8% at present. This shows a continued appetite for the asset class in spite of the economic downturn. The target allocations for this investor type have also increased in line with their current allocation. Back in 2007, endowment plans maintained an average target allocation of 11.1% of total assets, which has increased to 12.7% in 2012.

Harvard Management Company (HMC) is a large investor in the asset class and announced returns for its private equity portfolio of 26.2% for fiscal year ending June 2011, boosting the endowments overall returns. Over the past 20 years, HMC’s private equity portfolio has out-performed all other asset classes, with average returns over the period of 23%, ahead of its benchmark return of 15%. The endowment has a target allocation to the asset class of 12% of total assets.

Enthusiasm for the asset class has also remained strong amongst other investor types. Investor Intelligence currently tracks over 4,000 investors in private equity. The average allocation to private equity for all investor types (excluding fund of funds managers) currently stands at 8.6% of total assets, an increase from 7.1% in 2007. Average target allocations have also increased; from 8.9% in 2007 to 9.5% at present. This demonstrates that although the financial markets have been turbulent in recent years, many investors still retain confidence in the asset class.

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