U.S. endowments are pulling money from private equity as they fear price are going up and opportunities are slimming.
U.S. endowments with more than $1 billion in assets cut their private equity allocations from 15% in 2013 to 12% in 2014, the Financial Times reports. Investors don’t see enough reinvestment opportunities in high-quality private equity funds that would allow them to continue getting the returns they are used to.
But investors aren’t heading to the hills to get away from private equity. Endowments such as Harvard Management Company (HMC) have noted a upward swing in “dry powder” reserves, not a loss of faith in the asset class. The California Institute of Technology’s endowment rolled back its private equity allocation from its 11% to 8% because deal pricing was excessive. Even the trailblazing Yale has curbed its private equity exposure from 35% to 31% in 2013. Writes the FT:
In its annual endowment letter, HMC, which manages the university’s $36bn endowment, said it was “aware that market conditions in private equity are somewhat heated today”, adding “as a result, actual exposure to private equity may decrease in the near term before it increases”.
Public pensions are joining the crowd. Calpers cut its allocation from 14% to 10% in 2014, and is conducting a review of its relationships with private equity managers. At the end of 2014, the Pennsylvania Public School Employees’ Retirement System sold a $1.75 billion portfolio of private equity funds, moving to knock down its exposure to 15%.
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