Feeling the Pain, Endowments Plan To Lower Private Equity Exposure


With poor returns and liquidity issues, endowments—heavily reliant on private equity in the past—say they will lower allocations to this alternative asset class.


(November 5, 2009) – Many endowments are altering their private equity strategies after severe drawdowns in 2008.


According to London-based research firm Preqin, 57% of endowments altered their strategies relating to private equity after the onset of the financial crisis. Nine percent said they were postponing any future investments in the alternative asset class; 14% stated that they planned to lower their allocation over the long term. Somewhat surprisingly, considering their recent reliance on what many refer to as the “Yale Model”, larger funds—those with more than $750 million—were the most likely to be considering reductions. Only 30% of all endowments planned to counter this trend and increase allocations over the next five years.

Historically, endowments have been more likely than other asset owners to invest in private equity. However, with less debt available and an increased focus on liquidity, endowments have been widely expected to lower their exposure to the asset class.


This trend has been seen as of late in the more media-garnering American endowments, such as Harvard and Stanford. Both university funds have, in the past year, attempted to sell private equity commitments on the secondary markets. Harvard’s attempt, notably, was met with minimal success.


The survey was conducted with 100 endowments, the vast majority of whom are based in the US.

To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>