A significant minority of endowments and foundations are more concerned with private equity and private debt fees due to the return environment, according to research.
Forty percent of respondents in consultancy firm NEPC’s Year-End 2018 Survey said fees are a greater concern than ever before due to more muted return expectations.
Sixty percent said fees are always a concern, but no more or less than normal, and no investors viewed fees as less of a concern than in the past.
Harvard Management Company, which manages the Massachusetts university’s $39 billion endowment, said in a statement that it was “not pleased” with its overall 10 percent return for the year ended 30 June. Private equity was its best-performing asset class at 21 percent, while “other real assets and private debt” saw a 1 percent loss.
“We are concerned about overall long-term returns in private investing being challenged and pressured,” Andrea Auerbach, head of private markets at LP advisory Cambridge Associates told Private Equity International in September.
Sixty-three percent of LPs believe fees charged by private equity funds are difficult to justify internally, according to PEI’s Perspectives Survey 2019. Muted returns will have “implications” for fees, with LPs finding innovative ways to reduce costs such as fee-free co-investments, Auerbach added.
“If you are pursuing co-investment that the managers are offering you, you’re able to lower your cost of access to the asset class simply by adding the co-investment element.”
Boston-headquartered NEPC services more than 100 endowment and foundation relationships, representing over $62 billion in assets under management.
– This report has been updated to show private equity delivered a 21 percent return, not 16 percent, for the year ended 30 June.