Foundations, endowments and private equity

by Tom Carr

  • 01 Mar 2011
  • PE

The University of Illinois endowment has increased its target allocation to private equity, from 5% to 8%, two percentage points below the 10% target of the University’s Foundation. While the endowment and foundation act in a similar way, they are two separate pools of capital and invest separately.

The private equity allocations of US-based foundations and endowments can differ quite significantly. Preqin’s Investor Intelligence database shows there are a similar number of US-based endowments (331) and US-based foundations (324) investing in private equity , with similar aggregate funds under management of USD 353 billion and USD 325 billion respectively. There is a considerable disparity between the largest and smallest investors with regard to funds under management; the largest endowment is Harvard Management Company’s USD 27.6 billion fund, while the smallest endowment fund’s assets stand at USD 6 million. This difference is even greater among US-based foundations, with the largest foundation holding USD 33 billion and the smallest holding USD 1 million. The average funds under management of US-based endowments and foundations participating in private equity are similar; each investor type averages just over USD 1 billion in assets.

Endowments and foundations in the US generally have similar target allocations to private equity. The average endowment aims to allocate 12.7% of funds under management to the asset class while the average foundation has a slightly lower target of 11.9%.

On average, both US-based endowments and foundations are under allocated to the asset class, with average current allocations of 11.7% and 10.9% respectively. It is important to note, however, that percentage current and target allocations are not weighted to reflect the relative size of the investor and are taken as absolute figures.

Both US-based endowments and foundations are significant investors in private equity, as a percentage of funds under management, compared with some other institutional investor types. For example, the 252 US-based public pension funds that feature on Investor Intelligence have an average private equity target of 7.4% and an average current allocation to the asset class of 6.4%. 


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