Should Endowments Continue to Commit to Private Equity?

For over 30 years endowments have committed ever-increasing sums to private equity, based on an expectation of returns superior to those available in public markets.

For decades this belief was rewarded with above-market returns. However, we find evidence that some of the claimed benefits of private investing, as well as some of the returns reported, both by private investment firms and by endowments, are overstated. We find the performance of private equity and other private investments relative to public investments has diminished in recent years and has not provided adequate compensation for illiquidity and other risks to the average endowment. Finally, evidence indicates investing in current and near-future vintage years of private equity may provide disappointing results. The recent inability of private investments to outperform public markets could prove to be the new norm.

Article published in the The Journal of Investing, Winter 2020

Credit: Dennis Hammond, Head of Responsible Investment, Veriti Management LLC