Private equity investments are expected to outperform other asset classes in the US next year – but that doesn’t mean high returns.
In a new survey of endowments and foundations, investment consultants NEPC found that most are continuing to back PE for 2019/20 despite expectation that returns will be flat or negative.
Overall, 51% of respondents expect PE investments to outperform other asset classes over the next 12-24 months with 45% expecting neutral returns and 4% expecting underperformance relative to other asset classes.
“Given the aging US equity bull market and the need for endowments and foundations to meet their expected rate of return, it’s not surprising to see them investing in areas such as private equity,” said Scott Perry, Partner and member of NEPC’s Endowments & Foundations practice. “With volatility re-emerging after a fairly calm environment for the last few years, alternative asset classes in general have been generating interest among institutional investors.”
Slightly more than a quarter of respondents felt that Special Situations private equity investments would be the best performers with Growth Equity and Regional Strategies each on 17%.
US equities weaker, EMs still backed
Respondents are not expecting results from US equity investments in 2019 with 58% calling for flat to negative returns; 38% think there will be some tapering of returns but still in positive territory; just 4% think the rally will continue.
Emerging markets are a concern with 47% of respondents saying they are monitoring their exposure but 94% say they have not made any changes to allocations to EMs.
On the US economy, 53% believe it is stronger than it was a year ago, 32% think it’s the same, and 15% think it’s worse.
The political climate and rising interest rates are the top concerns among endowments and foundations.
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