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Endowments Investing In Private Equity

by Tom Carr

  • 10 Jan 2012
  • PE

Endowments have historically been significant players in private equity asset class, however many have been reluctant to make new private equity investments in recent years due to the volatile economic climate. Preqin data shows endowments accounted for 10% of the capital committed to the average fund that closed in 2008-2010 (excluding vehicles that were exclusively backed by high-net-worth individuals), whereas when looking at the make-up of LPs in the average fund that closed in 2009-2011, endowments represented a smaller  5% of overall committed capital.

Preqin’s Investor Intelligence database currently tracks 421 endowments, with aggregate assets under management of more than USD 441 billion, that either invest in private equity or are considering making a maiden commitment to the asset class. Endowments investing in private equity are predominantly located in North America, with 91% from this region; a further 7% are based in Europe, with 2% being based in Asia and rest of world.

The average target allocation to private equity of endowments is 12.6%, and they are generally at this target. Interestingly, 27% of endowments have stated that they are willing to investing in first-time funds, while another 17% will consider doing so. A further 19% will not invest in pure first-time fund but will consider spin-offs.

While endowments represent a smaller proportion of capital committed to funds that closed in 2009-2011, than they did in funds that closed between 2008 and 2010, many made significant commitments to the asset class in 2011. Examples of recent commitments include; University of Texas Investment Management Company (UTIMCO) committing USD 200 million in November 2011 with Post Oak Energy Capital, a private equity firm targeting natural resources in North America; and University of Michigan Endowment committing USD 50 million in December 2011 to Dyal Capital Partners, a globally-focused buyout vehicle.

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