Endowments and foundations worried about PE valuations

NEPC’s Q3 2015 poll shows that in response to high valuations and restricted access to top quartile managers, these investors are looking into co-investing.

Endowments and foundations are concerned about high valuations in private equity, as well as access to top quartile firms, according to investment consultant NEPC’s third quarter 2015 Endowment and Foundation Poll.

The poll of 58 respondents from across the US conducted in June by NEPC’s Endowment and Foundation Practice Group, found that 58 percent of respondents said valuations were their biggest concern.

Limited access to top funds was the second largest concern, followed by fund terms and fees, fundraising overhang, and fund sizes.

“Potentially in response to these concerns, co-investing appears to be of growing interest as endowments and foundations look for strategies that come with the potential for higher returns, lower fees and offer them greater control over their underlying investments,” the practice group’s partner Kristin Reynolds said.

Thirty-seven percent of respondents said they allocate more than 10 percent of their assets to private equity, while almost half of respondents said they expect lower PE returns, compared with 15 percent who expect higher returns.

The number of respondents unhappy with the clarity of PE fees was very high, according to the survey.

“This wasn’t a surprise,” Reynolds told sister publication Private Equity International. “Since the beginning of this year we’ve heard more and more questions about fees as part of the changing private equity conversation. Undoubtedly, we’re going to see more clear disclosure in the coming years.”

The NEPC Endowment and Foundation Practice Group serves 116 clients with a total of $62 billion in assets.