Feeling the Pain, Endowments Plan To Lower Private Equity Exposure

With poor returns and liquidity issues, endowments—heavily reliant on private equity in the past—say they will lower allocations to this alternative asset class.

(November 5, 2009) – Many endowments are altering their private equity strategies after severe drawdowns in 2008.

According to London-based research firm Preqin, 57% of endowments altered their strategies relating to private equity after the onset of the financial crisis. Nine percent said they were postponing any future investments in the alternative asset class; 14% stated that they planned to lower their allocation over the long term. Somewhat surprisingly, considering their recent reliance on what many refer to as the “Yale Model”, larger funds—those with more than $750 million—were the most likely to be considering reductions. Only 30% of all endowments planned to counter this trend and increase allocations over the next five years.

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Historically, endowments have been more likely than other asset owners to invest in private equity. However, with less debt available and an increased focus on liquidity, endowments have been widely expected to lower their exposure to the asset class.

This trend has been seen as of late in the more media-garnering American endowments, such as Harvard and Stanford. Both university funds have, in the past year, attempted to sell private equity commitments on the secondary markets. Harvard’s attempt, notably, was met with minimal success.

The survey was conducted with 100 endowments, the vast majority of whom are based in the US.

To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>

(October 29, 2009) – New York Attorney General Andrew Cuomo has unveiled his new plan to revamp the Empire State’s beleaguered pension system.

Coming after months of revelations regarding placement agents and pay-to-play scandals with the New York State Common Retirement Fund, Cuomo’s proposal would place tight limits on political contributions to those in charge of running the state retirement system’s investments. It would also increase disclosure from investment managers, institute a code of conduct, require conflicts of interest to be disclosed, and – most damagingly for the middlemen who act as go-betweens for investment managers and investors – would ban the use of lobbyists or placement agents when dealing with public funds. The Securities and Exchange Commission – as was reported in ai5000’s Fall issue – is also looking into a similar ban nationwide.

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The most significant part of the proposed plan, however, would be an alteration to the sole trustee structure of the $120 billion Common Fund. If passed, it would create a bipartisan board of trustees to make investment decisions, which now are made by a sole trustee, an elected official.

However, State Comptroller Thomas DiNapoli is expressing concern that the Cuomo initiative might not be allowed under state rules. Although the State’s constitution is not explicit in its requirement for a sole trustee structure, DiNapoli, through an aide, has questioned whether the move would pass muster under New York’s constitution. He also has repeatedly asserted that by increasing transparency, eliminating the use of placement agents, and lowering campaign limits, he has done enough to fend off calls for a revision of the sole trustee structure.

To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>