Endowments see PE returns plummet in 2015

For the fiscal year ended 30 June, private equity returns for endowments averaged at 9.2%, down from 16.5% in 2014.

Private equity investment returns for educational endowments dropped sharply in fiscal year 2015 ended 30 June, according to the NACUBO-Commonfund Study of Endowments.

The study, which gathered data from 812 US colleges and universities, found that endowments’ private equity strategies in leveraged buyouts; mezzanine; mergers and acquisition funds; and international private equity fell to an average of 9.2 percent from 16.5 percent in the previous year.

These returns placed private equity third in terms of performance, after venture capital, which returned 15.1 percent, and private equity real estate, which returned 9.9 percent. The returns were higher for a subset of endowments worth more than $1 billion – they saw 11.8 percent in their private equity investment returns.

Overall alternative strategies, which include private equity, private equity real estate, distressed debt and marketable alternative strategies like hedge funds, commodities and energy, slid to 1.1 percent in average returns for 2015, compared with 12.7 percent in 2014.

The total investment portfolio returns across all asset classes marked an average of 2.4 percent, down from 15.5 percent in 2014. The report said this is below the median 7.5 percent returns required by most endowments to maintain their purchasing power after spending, inflation and investment management costs.

Although returns plummeted, over three-quarters (78 percent) of the study participants said they spent more in dollars from their endowments. The median increase was 8.8 percent, far above the inflation rate, the report said.

Private equity was the second most popular asset class in terms of allocation, after marketable alternative strategies. Endowments in the survey allocated 10 percent to private equity, with larger investors allocating more to it than the smaller ones. Institutions with more than $1 billion in assets allocated 12 percent to private equity, while those with between $25 million and $50 million in assets allocated just 2 percent.

The institutions observed in the study represented $529 billion in endowment assets.

NACUBO, the National Association of College and University Business Officers, represents more than 2,100 US colleges and universities. It partnered with Commonfund, a non-profit asset management firm backed by the Ford Foundation, for the survey.