Endowments, foundations rewarded for going private

Top-decile institutional investors had a median allocation of 40% or more in private investments, according to Cambridge Associates research.

Endowments and foundations with a larger allocation to private investments have significantly outperformed their peers, according to research from Cambridge Associates.

Top-decile institutional investors had a median allocation of 40 percent or more in private investments, a Private Investing for Private Investors report from the investor advisory firm found.

Those with a 20-year average allocation of at least 15 percent generated an 8.1 percent median annualised return, 160 basis points higher than institutions with a less than five percent allocation.

Institutions with more private investment funds in their portfolio also faced a reduced risk of losing capital. A one fund portfolio had a 23.6 percent chance of generating a total-value-to-paid-in multiple of less than one, compared with a 9 percent chance for those with three funds and a 0.7 percent chance for nine fund portfolios.

Family offices have also been rewarded for greater exposure to private markets. Non-US families, which on average have a 26 percent allocation to private equity, generated a 4.6 percent return last year, according to Family Office Exchange. US families, which have a 15 percent allocation, recorded a -1.3 percent loss.

Endowments and foundations are growing more concerned over private investment costs. In consultancy firm NEPC’s Year-End 2018 Survey, 40 percent said fees were a greater concern than ever before due to more muted return expectations.

Harvard Management Company, which manages the US university’s $39 billion endowment, said in September that it was “not pleased” with its overall 10 percent return for the 12 months to 30 June. Private equity was its best-performing asset class at 21 percent, while “other real assets and private debt” had a 1 percent loss.