Foundations Investing in Private Equity – July 2014

by Alastair Hannah

  • 15 Jul 2014
  • PE

Foundations remain a substantial provider of capital in the private equity universe, accounting for 15% of all investors and exceeded in number only by public and private sector pension funds combined, according to Preqin’s Investor Intelligence. Preqin currently tracks 776 foundations with aggregate assets under management of $668bn.

Geographically, 75% of foundations have shown a preference for, or previously invested in, North America-focused vehicles. Around 50% show a preference for Europe-focused funds and 30% seek exposure to emerging markets. In terms of the location of foundations investing in private equity, North America is the base for the vast majority (88%) and the next largest proportion (8%) is in Europe. 

The average allocation to private equity by foundations has seen a slight reduction from 2013 to 2014. In 2013, the average current allocation to the asset class as a percentage of assets under management was 11.7%, with a 12.0% target. Now, the average current allocation to private equity is 10.5%, with an average target allocation of 11.4%. However, it should be noted that the consistent difference between the current and target allocations indicates that foundations are below their target allocations to private equity and may be looking to ramp up investment activity in the asset class.

According to Preqin’s Investor Intelligence, there are currently 45 foundations that are looking to make new commitments to private equity funds in the next 12 months. The majority (78%) have expressed an appetite for venture capital funds, while 62% of these foundations are looking to commit to fund of funds vehicles. Funds of funds provide investment opportunities to smaller investors that may not yet have formed relationships with fund managers or have enough capital to invest in direct primary funds. As such, it is unsurprising that they continue to hold significant appeal among the smaller foundations in the private equity universe.

Although a relatively small number of foundations are looking to make new commitments to private equity in the next 12 months, they still remain a substantial component of the private equity space.

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