Measuring Foundation and Endowment Enthusiasm for New Fund Offerings

The ship has been steadied on larger hedge funds and larger, institutional investors plan to invest more in the alternatives segment.  But, recent news suggests time cycles for capital raising from foundations or endowments have increased dramatically as these LPs have reduced their staff and allocation capability while rebalancing their portfolios.  Pensions and Investments reports that returns on Private Equity are down dramatically from 45% in 2007 to 16% this past quarter.  LPs surveyed expect anywhere from 7% to 13% of investors to default on Private Equity commitments over the next 2 years.  More info here, http://bit.ly/krF6l

The study follows here, http://bit.ly/oAavJ .

The New York Times reports that increasing numbers of LPs are cutting their staff.  Among those staff cuts includes multiple fund allocation staff.  We expect allocations to slow in two ways.  (1) New funds with limited experience will have fewer staff at LPs to review their allocation requests, (2) The cycle for worthy new funds and emerging managers will lengthen due to the absence of such staff.   David J. Morse, vice president for communications at Robert Wood Johnson said, "We need to be an organization whose grant making and administrative costs are those of an institution with $7 billion in assets, rather than one with the $10 billion in assets we had a year ago,”.   More info here, http://bit.ly/WRS0b

Likewise Harvard has recently cut 275 in addition to more than 500 persons who took early retirement in a special program this year.  Also, hiring freezes have been in place and a similar salary freeze.   More info here, http://bit.ly/DsY4K

Yet, the Greenwich Associates also reports that Pension Funds and endowments have been among the most active buyers of stakes in opportunistic funds.  Endowments seem to be moving towards more liquid assets which may bode ill for PE assets.  Other sources have said the in rebalancing portfolios, LPs have ridden the wave of emerging market ETFs which are highly liquid.  More information about the article is here, http://www.greenwich.com/ .  The Financial Times article follows, http://bit.ly/GsmgV

Mirroring the LP perspective, PE Funds of Funds (FOFs) are stating that they too are lengthening their due diligence cycles and digging deeper on critiques of funds that are looking for allocations.  FOFs are far more likely to use their own sources for evaluative purposes rather than references provided by GPs.  More info here, http://bit.ly/1SDmJ0

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