Private Equity Seen as Top Investment for Endowments in 2019

(Bloomberg) -- Endowments and foundations plan to stick with private equity investments even though they are concerned about fees, according to a new survey.

More than half of the 45 respondents said they expect the asset class to outperform in the next 12 to 24 months relative to other investments. The survey, released Dec. 11, was conducted in November by NEPC, a consulting firm that caters to more than 100 such institutions with total assets of more than $60 billion.

This year’s results mirror the 2017 survey, when nearly half of respondents said they expected to increase their private equity exposure.

“It’s a reaffirmation of what they’ve been doing,” Sebastian Grzejka, a senior consultant at NEPC, said in an interview.

Private Equity Seen as Top Investment for Endowments in 2019

A number of elite university endowments reported double-digit gains in fiscal 2018 driven by strong private equity and venture capital returns.

Sixty percent of survey respondents, however, said fees are a concern, and 40 percent said fees are a bigger issue “given more muted return expectations.”

Special situations, which invest in niche or specific sectors, growth equity and regional strategies are expected to deliver the strongest returns in the next five to 10 years, according to respondents. They said they plan to avoid venture capital and secondaries strategies in the near-term in part because of lofty valuations.

The S&P 500 returned 12.5 percent in the year ended June 30. Respondents weren’t optimistic about U.S. equities in 2019, with 58 percent saying domestic equity returns will be flat to negative. The index is down 1.4 percent so far this year.

“It’s not as easy to earn that next dollar as it has been over the last decade from public markets so that’s why you’re seeing that shift in view,” to alternative investments, Grzejka said.

©2018 Bloomberg L.P.