“There was a time when endowments were considered the best partners – smart, timely and with long-term horizons. They are still smart; it’s just that other client types have since become equally capable through their own experience and that of their advisors.”
Who said it: Timothy Barron, CAIA, Chief Investment Officer, Segal Rogercasey
In Context: Barron is commenting here on new research that suggests that the reputation for PE outperformance by endowments was largely a result of their exposure to well-performing venture capital funds in the nineties. The research says that in the period 1991–98, endowments did indeed outperform other LPs, producing an average IRR of 35.74%, with investment firms second-highest with 25.78%. However, between 1999 and 2006 endowment returns fell to 5.83% – lower than the average for the period, which was 7.9%. Endowments originally had an advantage being early investors, but that advantage has “attenuated over time” as the PE market matured, becoming more formalized and transparent with inflows of very large amounts of capital. The research was done by Berk Sensoy and Michael Weisbach (Ohio State University) and Yingdo Wang (California State University). Barron noted in his commentary that PE returns are “overall down” not just at endowment from what they once were and that “active return generation has become more difficult” – but the return/risk profile of PE is “still very attractive”, just not quite as attractive as in the less mature days. The upside of a more mature PE market is that there may be “greater predictability”, “improved accountability” and “risk controls”, according to Barron.
Where we found it:FINDINGs