PitchBook: Elite University Endowments Confront a ‘Parade of Horribles’
NEPC’s Colin Hatton was recently quoted in a PitchBook article exploring how elite university endowments are facing pressure from underperforming private markets, rising costs, and political scrutiny. He highlights the need for diversification and suggests endowments may need to adjust asset allocations as private equity returns decline. View excerpts below or read the full article on the PitchBook site here.
Endowment investment teams at top universities are exploring options to cash out of some of their public market investments, primarily through hedge fund redemptions, to compensate for federal funding cuts and prepare for potential tax increases.
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“With greater levels of uncertainty, you want to understand what your liquidity needs are going to be,” said Colin Hatton, a principal at LP consultant NEPC, where he advises endowments and foundations.
Hatton said his firm is advising clients to keep sufficient capital in safe-haven assets, and in some cases, to take out lines of credit on their portfolios for more liquidity.
FundFire: How Michigan State’s Endowment Outperformed the Ivies
Kristin Reynolds of NEPC was recently quoted in a FundFire article offering a cautionary perspective on MSU’s tech concentration, noting potential risks from overexposure to large-cap U.S. tech stocks amid rising market volatility. View excerpts below or read the full article on the FundFire site here.
Michigan State University’s investment returns beat many elite endowment peers for the fiscal year ending June 30, 2024.
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“Endowments with high public equity U.S. tech exposure performed exceptionally well over the past two years but are likely facing challenges in the current market,” said Kristin Reynolds, a partner at NEPC.
NEPC has diversified U.S. tech exposure with value-oriented stock, Reynolds said. “Conversely, non-U.S. equities have been performing better,” she added.
Pensions & Investments: TIPS making a comeback for ETF investors
NEPC’s Phillip Nelson was recently quoted in a Pensions & Investments article highlighting TIPS as a key tool for real rate exposure, notes that breakeven rates are currently high, and says clients are increasingly looking to TIPS for diversification and liquidity. View the full article on Pensions & Investments’ site here.
Amid heightened volatility and economic uncertainty, the market for exchange-traded funds holding Treasury inflation-protected securities has rekindled after three consecutive years of outflows.
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“From an allocator’s long-term perspective, TIPS is a favorite asset class for real rate exposure,” said Phillip Nelson, partner and head of asset allocation at investment consultant NEPC. “As a rough target, we look at TIPS holdings equal to the size of a Treasury allocation or relative to investment-grade exposure.”
Nelson has observed, however, that 5-year and 10-year breakeven rates are “currently a little rich.” Breakeven rates are the spread between nominal Treasuries and TIPS at constant maturities.
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“Over the last month and a half, we’ve received a lot more questions on TIPS given the uncertainty of the tariff regime,” said NEPC’s Nelson.
“Within our OCIO business, clients want to know if they have enough liquidity to meet cash flow needs. They are looking to get more diversified, add fixed income, and allocate slightly more to TIPS.”
Click here to read the full article on the Pensions & Investment site.
Business Insider: 3 trades keeping investors in the green this year as the S&P 500 corrects
NEPC’s Head of Asset Allocation, Phill Nelson, was recently quoted in a Business Insider article to provide insights on the S&P 500 correction last week. View the full article on Business Insider site here.
- The S&P 500 has shed 4% since the beginning of the year as Big Tech stocks decline.
- However, previously unloved areas of the market like healthcare are rebounding.
- Gold and European stocks are also rallying.
Tariff volatility, mounting recession fears, and uncertainty around the AI trade have rocked markets this year — pushing the S&P 500 into correction territory last week.
But amid the stock-market sell-off, there are still pockets of outperformance.
“Anything with a more moderate valuation profile to start the year has done well,” Phillip Nelson, head of asset allocation at the investment consulting firm NEPC, said. “Areas less impacted by the headlines associated with tariffs seem to have weathered some of the uncertainty of the last several months.”
Pensions & Investments: Consolidation in the Retirement Industry Leads to Better Services and Greater Rivalry
NEPC’s CEO, Mike Manning, was recently quoted in a Pensions & Investments article to provide insights on the consolidation of DC plans and plan sponsors. View the full article on Pensions & Investments’ site here.
Consolidation of record keepers and other vendors to defined contribution retirement plans is a positive trend that leads to better services for participants, according to four speakers at Pensions & Investments’ Defined Contribution East conference March 10.
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Mike Manning, managing partner at NEPC, and Bob Oros, chairman and CEO of wealth management firm Hightower Advisors, agreed, saying consolidation leads to a better customer experience, lower fees and better participant outcomes.
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NEPC’s Manning said the trick is understanding how plan sponsors want to work with record keepers, advisers and other providers.
“It’s all about how that we can work with the data in such a way that it makes it easy for advisers to serve their customers,” Manning said.
Manning also urged plan sponsors to “put pressure on their record keepers to work with all the other folks in the ecosystem.”
Click here to read the full article on the Pensions & Investment site.
Pensions & Investments: Managed Account Offerings in Retirement Plans Shrink as Employers Wait for Better Deal – NEPC
NEPC’s DC Plan Trends and Fee Survey data was recently featured in a Pensions & Investments article which covers the decline in managed accounts in retirement plans, citing concerns about provider benefits over participants and advocating for participant-aligned, subscription-based pricing models. View the full article on Pensions & Investments’ site here.
The number of employers offering managed accounts in their workplace retirement savings plans has shrunk, according to NEPC’s “Defined Contribution Plan Trends and Fee Survey” released March 4.
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“We believe managed account providers can and do construct efficient investment portfolios, but plan providers, as fiduciaries, should push for more improved outcomes for their plan participants through negotiating lower fees and seeking to better align the interests of the managed account providers with those of participants,” Mikaylee O’Connor, principal and head of defined contribution solutions at NEPC, said in the news release.
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“By implementing a lower-based fee for less engaged participants, providers can offer an entry-level option, while more engaged participants could access expanded investment options through tiered subscription offerings,” O’Connor said.
O’Connor proposed a single-digit base fee for less engaged participants and a series of subscriptions for additional services and/or investment exposures for individuals who engage with the accounts and want the additional features.
Click here to read the full article on the Pensions & Investment site.
InvestmentNews: Managed Accounts Have Hit a Wall in DC Plans, Finds Survey
NEPC’s DC Plan Trends and Fee Survey data was recently featured in an InvestmentNews article which highlighted our findings on the increased demand for customized solutions in pension plans and the shift towards passive management in target-date funds. View the full article on InvestmentNews’ site here.
A new report from NEPC offers new insights in the workplace retirement savings space, particularly when it comes to the use of managed accounts and target-date solutions.
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“We believe managed account providers can and do construct efficient investment portfolios, but plan providers, as fiduciaries, should push for improved outcomes for their plan participants through negotiating lower fees and seeking to better align the interests of the managed account providers with those of participants,” Mikaylee O’Connor, principal and head of defined contribution solutions at NEPC, said in a statement revealing the results.
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To improve uptake among plan members, she suggested sponsors could offer a subscription-based model with lower base fees for less engaged participants, while providing more investment options for those more actively involved through tiered subscriptions.
“This approach allows for flexibility in costs and features, catering to diverse participant needs and engagement levels,” she said.
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“Analyzing this year’s survey results through a long-term lens, we are excited by the ample opportunity for industry innovation, personalization, and increased accessibility in the defined contribution marketplace, especially across areas like alternative investments, managed accounts, TDFs, and retirement income solutions,” O’Connor said.
Click here to read the full article on the InvestmentNews site.
PlanSponsor: Fiduciary Risk Continues to Pose Barrier to Mass Adoption of Alts in DC Plans
NEPC Partner, Bill Ryan, was recently quoted in a PlanSponsor article to discuss how fiduciary risk, particularly the potential for litigation due to higher fees associated with private equity investments, continues to be a significant barrier for plan sponsors considering alternative investments in defined contribution plans. View the full article on PlanSponsor’s site here.
Many defined contribution plan sponsors have concerns about offering alternative investments in their 401(k) menu, but a supportive regulatory environment may shift the tide.
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Bill Ryan, a partner in and defined contribution leader at NEPC, argues that the industry has already administratively solved for the issue of incorporating alts into DC plans. For example, he said Washington has, for the past five years, put private equity into the state’s DC plan through target-date funds, and the University of California Retirement Plan historically had private equity target allocation in a target-risk fund.
“Most large-cap active growth managers have less than 5% in a private placement or private equity in their mutual funds already, so private equity and private markets are in DC plans and are fully functioning,” Ryan says.
However, Ryan says there is an “asymmetric risk” to the fiduciary when offering any sort of alternative investment option because the reported fees tend to be the highest when the investment performs the best.
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“It’s not that we can’t administratively deliver private markets,” Ryan says. “It’s these ancillary things that are hangnails that intimidate plan sponsors from doing it.”
Ryan emphasizes that higher fees are not necessarily a bad outcome for participants, but it can be risky for the plan sponsors because such fee disclosure often leads to litigation.
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Overall, Ryan says private markets are in DC plans today, and more adoption is anticipated.
“Access is extremely important, especially with a very [pro-alternatives] administration, and we anticipate an uptick in flows and adoption, but it should be mindful, with the appropriate governance around it,” he says.
Click here to read the full article on the PlanSponsor site.
Forbes: Tough Markets, Smart Moves: How Investors Are Reallocating Capital
NEPC was mentioned in a recent Forbes article to highlight Sarah Samuels’ warning about continued valuation declines in private equity and venture capital, along with concerns over mounting liquidity pressures. View excerpts below or read the full article on the Forbes site here.
“In a time of rising market uncertainty, sophisticated investors are making strategic shifts in their portfolio allocations to navigate an evolving investment landscape. After two years of double-digit outperformance in public equities, it is not surprising that investors are looking to increase their exposure to private markets, seeking diversification and perceived stability. However, this trend is not without risks, as private market valuations can create an illusion of security in an environment where liquidity constraints may be mounting.”
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“Additionally, consulting firms like NEPC have warned investors about potential valuation declines in private equity and venture capital. Many firms have avoided markdowns by opting for insider rounds and bridge financing to maintain valuations, but mounting liquidity pressures remain a concern.”
Infrastructure Investor: ‘It’s Really Important Investors are Aware of the Profile’, LP Consultant Warns
NEPC’s Matt Ritter was recently featured in an Infrastructure Investor article discussing how he is not against funds that are ‘more private equity-like’, as long as LPs understand the risk. View excerpts below or read the full article on the Infrastructure Investor site here.
Investors in the infrastructure space need to be aware of the risks of the asset class as they look to meet the tailwinds of the energy transition and digital infrastructure, Matthew Ritter, partner and head of real assets at US-based LP consultant NEPC, told Infrastructure Investor.
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“I think there’s really attractive opportunities for investing in infrastructure today across the board, particularly in some of these themes, ” he said. “At the same time though, I think it’s really important that investors be aware of the risk profile of what they’re investing in.
“There are strategies that are much more at the secure end of the spectrum with long-term contracted cashflows with credit counterparties, and then there’s strategies that are a little bit more private equity-like. I think there are attractive opportunities across that spectrum, but it’s important to make sure that you understand what you’re investing in and that it aligns with your goals and objectives.”
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“As these themes have garnered a lot of interest, there’s been a lot of new entrants or managers launching new strategies to capitalise on these themes, ” Ritter outlined. “Some of which may call themselves infrastructure, but might actually look more like a private equity strategy in terms of the underlying risk and return profile.
“So, while total return is something we are mindful of, of course we want to be thinking about the risk that you’re taking. Is a strategy really taking on commercialisation or technology risk in a way that is not suitable for an infrastructure portfolio? Those are things we’re thinking about as well.”
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“A lot of commitments were made last year, but there is definitely a subset of investors that, just by their exposure through other private markets – whether it’s real estate, private equity or other areas – there’s been decreased liquidity in the market and therefore they’re getting fewer dollars back, ” he reasoned. “That has certainly constrained their ability to make new investments to some degree.”
Click here to read the full article on the Infrastructure Investor site.