Thirty percent of the world’s endowments view venture capital as an area of focus in the future.
Whilst just 12% see it as attractive right now, the figure going forward makes venture the second most attractive place to be for endowment funds, just behind the 34% who voted for distressed funds.
The numbers come from the latest research by private equity data providers Preqin, which surveyed 100 endowments (91 in North America, eight in Europe) and found that 74% of respondents are either at or below their target allocation to private equity at present, with a little over a quarter above it.
Endowments have long been significant backers of the private equity industry, with Preqin putting the average target allocation at 11.8%, above the 8.8% average for all types of institutional investor.
In light of the economic downturn over the last two and a half years, 57% of respondents to the survey changed their private equity strategies, with 9% postponing any investment in the asset class until 2010.
Of those investing in 2009, 35% are reducing the rate of commitments, 22% are taking a stricter approach to due diligence.
Endowments’ reactions to the financial crisis have not been uniform and vary according to their size. Those with US$150m or less under management are less likely to have altered their private equity plans, whilst those in the US$750m or more bracket had the largest proportion of respondents planning to reduce their commitments.
While distressed and venture top the table for endowments’ future plans, buyouts do not fare so well. Just 7% view mega buyouts favourably (still up from the 3% which regard them well at the moment). The mid-market is viewed in a more positive light, with 17% of respondents of the belief that the area presents the best opportunities right now, and 24% put it as an area of focus going forward.
North America tops the charts of the preferred region for investment. Ninety-three percent of endowments have previously invested there and are still looking to invest in the region. Eighty-three percent are planning to invest in Europe, and 81% are looking to Asia and the rest of the world.
Thirty-eight percent are planning to invest in private equity in 2010, and 26% are still planning to do so before the end of this year. Twenty-four percent are postponing investments until 2011, with an additional 6% unlikely to invest in the next two years, and another 6% undecided.