Alternative Fund Insight: UC San Diego Foundation Tops Endowment Ranking
NEPC’s mega-endowments white paper data was recently highlighted in an article that explored higher education endowment rankings, focusing on the trend of smaller endowments superseding their larger counterparts. View the full article on Alternative Fund Insight’s site here.
The UC San Diego Foundation, which runs $1.6bn, topped the performance charts with a 15.5% gain in the year to mid-2024 as smaller endowments outperformed their bigger peers.
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“Since late 2022, public large-cap equities in the US have been the performance leaders, spurred by exceptional gains for large technology corporations at the forefront of the AI revolution,” said NEPC, which compiled the annual ranking.
“This trend has been of great value to smaller and mid-sized endowments with higher US large-cap exposure.”
Click here to read the full article on the Alternative Fund Insights’ site.
Pensions & Investments: Endowments’ Fiscal 2024 Returns Boosted by AI Revolution — NEPC Report
NEPC’s mega-endowments white paper data was recently featured in an article to discuss how the artificial intelligence boom impacted the top-performing university and college endowments. View the full article on Pensions & Investments’ site here.
The top-performing university and college endowments in fiscal year 2024 had high exposures to public companies assisting in the artificial intelligence revolution, according to an NEPC report released Jan. 14.
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For a second consecutive year, the largest endowments mostly trailed behind their smaller and mid-sized peers — particularly those with more exposure to public equities, wrote Colin Hatton, principal and senior consultant at NEPC’s endowments and foundation practice.
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And while “it’s often true that compelling new technologies arise in the private markets first, which is a reason why the mega endowments have historically outperformed,” longstanding, U.S.-domiciled public companies such as Nvidia, Amazon and Microsoft have been responsible for 24.6% of the S&P 500’s gains, Hatton added.
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Although AI drove strong returns for large-cap U.S. stocks, Hatton noted “we’re not convinced this is a trend with staying power.” He added it may be hard for technology firms to outperform earnings expectations to support high valuation multiples, which have contributed to their gains so far.
Click here to read the full article on the Pensions & Investments site.
Chief Investment Officer: UCSD Foundation Repeats as Best-Performing University Endowment in Fiscal 2024
NEPC’s mega-endowments white paper data was recently featured in an article to discuss how smaller funds with a greater focus on equities outperformed larger endowments that had higher allocations to private markets during a strong year for artificial intelligence and tech stocks. View the full article on Chief Investment Officer’s site here.
In fiscal 2024, university endowments followed a similar trend as the prior year: Endowments with a higher allocation to equites were top performers, while endowments with higher allocations to private markets often saw single-digit returns.
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The median endowment, out of 78 endowments NEPC tracked, returned 11.9% in the fiscal year.
“The [UC San Diego Foundation’s] success stems from a unique approach to endowment management that is a particularly good fit for current market trends,” Colin Hatton, an NEPC principal for endowments and foundations, wrote in the NEPC report. “They utilize several University of California General Endowment Pool accounts, enhancing them with their own strategic position which consists primarily of U.S. large-cap equity. It’s a hybrid approach that allows them to benefit from the University of California Investment Office’s resources while employing an asset allocation that meets their own needs.”
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“We also believe that private equity and venture capital aren’t likely to remain underperforming sectors for an extended period of time,” the NEPC report noted. “Both segments needed to endure a period of repricing in an environment of higher interest rates, but we think that cycle will come to an end now that interest rates are expected to remain stable or come down.”
Click here to read the full article on the Chief Investment Officer site.
FundFire: Pensions to Boost Investments in Real Estate, Infrastructure in ‘25
Margaret Belmondo of NEPC was recently featured in a FundFire article discussing why pensions in certain states are increasing their focus on real assets, driven by stronger real estate fundamentals and AI infrastructure. View excerpts below or read the full article on the FundFire site here.
Pensions in New York, California, Ohio, Connecticut and New Hampshire are upping their focus on real assets, spurred by improved real estate fundamentals and AI infrastructure.
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Real estate deal pricing appears to have stabilized as transaction volumes started to rebound in many markets, said Margaret Belmondo, head of the public fund practice at institutional consulting firm NEPC.
“It remains a favorable time to be a liquidity or solution provider, with opportunities in real estate lending, secondaries, and opportunistic equity strategies,” Belmondo said. “After several years of limited activity, real estate fundraising may start to recover in 2025 as private real estate values improve.”
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Continued investor excitement around sectors like digital assets and the energy transition, coupled with investors building new target allocations, should sustain strong capital raising in 2025, Belmondo said.
“A notable trend is the rise of smaller infrastructure firms, often spin-offs from larger players, which presents promising opportunities in the lower-middle market,” she said.
And as some investors are shifting away from “strict ESG considerations,” such moves have triggered a fundraising pickup in the energy sector – although still “modest compared to the mid-2010s,” said Belmondo.
Pensions & Investments: SECURE 2.0, Retirement Income and Litigation Risk Lead the DC Menu for 2025
NEPC’s Mikaylee O’Connor was recently quoted in a Pensions & Investments article discussing what defined contribution executives can do in 2025, despite some uncertainty. View excerpts below or read the full article on the Pensions & Investments site here.
As 2025 portends to be filled with political, legislative and regulatory uncertainty, defined contribution plan executives are focusing on what they can do and should do — rather than what might happen.
“Uncertainty creates inaction,” said Mikaylee O’Connor, head of defined contribution solutions at NEPC.
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Managed accounts will come under greater scrutiny by sponsors, predicted NEPC’s O’Connor, noting that participants’ willingness to provide detailed financial information is crucial to this feature’s success.
“The big focus is on the managed account provider to make sure managed accounts are understood (by participants) and adding value,” she said.
ERISA lawsuits against sponsors offering managed accounts “has caused a cooling effect or an inquiry effect,” she said. The primary complaint is that managed account fees are excessive.
“The main concern of sponsors is the need for participant input,” she added. “If participants aren’t engaging, then they are paying high fees” compared to a target-date fund.
O’Connor said she expected “a lot of pressure” on managed account providers to reduce fees.
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O’Connor noted that industries with frequent turnover make it hard for those sponsors to plan for lifetime income products. “Employee tenure is a structural challenge,” said O’Connor, agreeing that portability is a big issue.
Click here to read the full article on the Pensions & Investments site.
Responsible Investor: Are European Fund Houses Coming for US Managers' ESG Lunch?
NEPC’s Endowment and Foundation Team Leader, Krissy Pelletier, was quoted in Responsible Investor to speak on how asset owners are thinking about sustainability considerations and its role in their manager selection. View the article on Responsible Investor’s site here.
US asset owners look further afield as local managers lose appetite for sustainability.
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Krissy Pelletier, partner and head of endowment and foundation team at consultancy NEPC, says US asset owners are getting “more and more savvy and looking much further and much deeper”.
“Even investors who come to the table with strictly the investment-opportunity lens have gotten more savvy on digging deeper when there is a sustainability-minded find, asking questions about the expertise of the team or additional resources that a firm is utilising,” she adds.
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According to Pelletier, there may have to be “hard choices” if underperformance of sustainable or ESG strategies impacts the spend rate of one of her clients or the work it is aiming to carry out.
However, she notes that many asset owners are being patient as some ESG strategies underperform and are willing to try and understand the underlying causes.
Click here to continue reading the full Responsible Investor article.
Capital Allocators: Asset Management Consolidation
NEPC’s Tim McCusker was featured on the Capital Allocators Podcast to discuss NEPC’s recent merger with Hightower Holdings and provide an inside look at dealmaking in asset management. Listen to the podcast on Capital Allocators here.
Bloomberg: Manufacturers Caught Between Trump Tariff Bluster and Reality
NEPC’s Head of Asset Allocation, Phillip Nelson, speaks on the the future of American tariffs as a new administration rolls in. View the article on Bloomberg’s site here.
It’s possible that Donald Trump’s latest tariff threats on Mexico and Canada are just negotiating bluster. It’s also possible that he’s serious. Either way, US manufacturers are going to get caught in the middle.
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“The president has latitude to carve out exemptions by individual product code to more specifically target Chinese manufacturers that have invested in Mexico or other areas of national priority without crippling the US supply chain,” said Phillip Nelson, head of asset allocation at NEPC, an investment consultant that oversees $1.7 trillion of assets.
Bloomberg Radio: With Guest Sarah Samuels
NEPC’s Sarah Samuels was featured on the Bloomberg Intelligence Podcast for her outlook on private markets in 2025. Listen to the podcast on Bloomberg here.
Pensions & Investments: New Crop of Embedded Annuity Target-Date Funds Seen as a Way Station — Not a Final Stop, Experts Say
NEPC’s Bill Ryan was recently quoted in an article by Pensions & Investments which is focused on increasing returns to 401(k)s through embedded annuity options. View excerpts below or read the full article on the Pensions & Investments site here.
Target-date funds coming to market this year with embedded annuity options could mark a key step forward in the industry’s long slog to help 401(k) participants stretch their retirement savings into needed income for life.
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Bill Ryan, a partner and head of defined contribution solutions with Boston-based investment consultant NEPC, said he remains skeptical, predicting that no more than 10% of participants will likely be in the market to buy an annuity.
“There’s a higher probability, if they engage at retirement, they take all the money out, move it to their own personal wealth adviser, who then may facilitate something similar,” Ryan said. In the defined contribution construct, “we’re missing the human wealth manager that actually helps the individual trigger the annuity. There’s nobody holding the hand of the participants to successfully facilitate that transaction … and that human behavior is where I think this breaks down.”
Instead, Ryan predicted, passive target-date funds with elevated equity exposures could prove to be the “killer app” in the retirement space, allowing participants to build up bigger 401(k) retirement pools over a working life of 40 years or more which they can then rely on for a “paycheck” in retirement, without the need of a guaranteed income crutch.
Participants who have undersaved, meanwhile, could be worsening their situations by paying an insurer a premium to get a guaranteed income stream. “They actually could put themselves in a bigger deficit,” he said.
Click here to read the full article on the Pensions & Investments site.