Tuesday, January 31, 2023

Alternatives boost returns of largest endowments


  • Largest endowments helped more by alts than smaller pools, says NEPC
  • $1bn-plus pools tend to be about twice as exposed to HFs and privates, compared to average
  • Endowments/foundations the top target for 19% of hedge funds in 2023: AFI’s business development survey

Greater exposure to alternative investments helped “mega” endowments outpace their smaller peers in the latest fiscal year, according to consulting firm NEPC.

Real assets, hedge funds and private equity protected capital amid the big public market falls in the year to mid-2022.

“In recent years, we theorised large endowments were generally outperforming their smaller peers due to higher allocations to private markets,” said Colin Hatton, senior consultant in NEPC’s endowments and foundations team.

“In full-year 2022 this remained a driving factor but extended to nearly all alternative asset classes.”

Hedge funds have zeroed in on the endowment opportunity. Endowments and foundations were named as the top investor target for 2023 by 19% of investor relations execs in AFI’s business development survey, beaten only by pensions (33%).


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The average endowment started last year with 69% of their portfolio invested in public equity and fixed-income managers, but $1bn-plus endowments had only 38%.

NEPC said the largest share of this difference came from private equity and venture capital and that mega endowments also had greater allocations to real assets and hedge funds.

Portfolio allocation of $1bn-plus endowment compared to the average:

Private equity – 34.7% vs 17.7%
Real assets – 10.5% vs 6.6%
Hedge funds – 18.1% vs 10.1%

Email AFI to request a copy of AFI’s Hedge Fund Business Development Survey 2023.