Endowments increasingly look to PE to boost returns

A recently released survey of 785 North American college and university endowments found their average return from the private equity asset class last year was nearly 20 percent. The study also noted that since 1998, the institutions have upped their private equity allocations by 475 percent.

Private equity was the second-highest performing asset class last year for university and college endowments, according to a recently released study by the National Association of College and University Business Officers (NACUBO) in conjunction with TIAA-CREF Asset Management.

The asset class returned an average of 19.8 percent in 2007 to the 785 US and Canadian endowments surveyed, up from 17.9 percent in 2006. The results were second only to non-US equities, which returned an average of 28.3 percent to endowments in 2007, up from 24.8 percent the previous year.

The study, which covered $411.2 billion (€284 billion) in endowment assets, notes that the endowments’ overall one-year average rate of return at 17.2 percent was “strong” but falls short of other major indices. For the fiscal year ending 30 June 2007, the S&P 500 returned 20.6 percent, the Russell 3000 returned 20.1 percent and the MSCI World ex US returned 27.1 percent, it said.

Also examined was the percent change in average asset allocations over a 10-year period, with private equity gaining the most ground of all asset classes. Endowments’ average allocation to private equity in 2007 was 2.3 percent – a 475 percent increase from the average 0.4 percent in 1998. Meanwhile, venture capital allocations averaged 0.9 percent last year, a 28.6 percent increase from 1998; allocations to hedge funds increased 278.6 percent to 10.6 percent; and real estate allocations averaged 3.5 percent, or 66.7 percent higher than in 1998.

The study has been conducted for 35 years. TIAA-CREF’s asset management division partnered with NACUBO in 2000; it helps formulate quetions and collects and analyses data for the annual surveys.