The University of Texas/Texas A&M Investment Management Co. and Harvard Management Co. Inc. lead global endowments in private equity allocation with committed capital totaling $22.19 billion and $19.77 billion, respectively, as of Nov. 4, according to S&P Global Market Intelligence data. The analysis only includes endowments with available private equity allocation data.

The University of Texas' investment arm has allocated 30% of its assets to private equity, with GGV Capital as the preferred fund manager. The university has committed capital across 10 funds from the manager including GGV Capital V LP, GGV Discovery I LP, GGV Discovery III LP and GGV Capital VIII Plus LP.

Harvard has allocated 39% of its endowment assets to private equity, with USVP Management Co. LLC as its preferred fund manager. Harvard has commitments across four of USVP's funds: US Venture Partners IV LP, U.S. Venture Partners V LP, U.S. Venture Partners VI LP and U.S. Venture Partners VII LP, which target the information technology and healthcare industries.

The 18 global endowments have a combined private equity allocation of $58.17 billion, with allocations ranging from 9% to 40.6% of assets.

Largest alternatives allocator

Among investor groups, endowments are the largest allocators to alternatives as a percentage of total assets under management, according to Paul Sinthunont, Preqin's head of asset allocation research.

Endowments for the most part have specific return requirements. "Return targets are set to ensure size of endowments are maintained or grown if no additional contributions are made, given spending requirements to finance institutional needs every year," Sinthunont wrote in an emailed response to Market Intelligence.

These institutional investors "have lower liquidity requirements compared to other types of institutional investors that have liabilities such as defined benefit pension funds," he added.

Endowments have increasingly allocated more to private equity, including venture capital, and less to hedge funds, according to Preqin data.

"The transition toward private equity and venture capital is driving higher risk-adjusted returns," Sinthunont said. "Historic allocations to hedge funds have underperformed compared to private equity and venture capital over many years. Net of fees, [private equity] and VC have also outperformed generally public market equities as well."

– Download a spreadsheet with data featured in this story. – See the list of pension funds with the largest private equity allocation. – Explore more private equity coverage.

Assessing fund distributions

Nonetheless, analyzing private fund performance and capital distributions is complex. Performance measures such as internal rate of return and distributions-to-paid-in-capital ratio do not provide the full picture, according to Sinthunont.

Limited partners (LPs) must determine the source of a fund's capital distributions. "Is it a real exit that has led to a distribution to an LP or is it something else [such as net asset value] loans or dividend recapitalizations? If it's an exit, was it due to selling the best assets too early?"

He noted a "distributions glut" in 2023 and 2024. "LPs model cash flow expectations to ensure they commit the appropriate capital to new funds or finance liquidity requirements," he said. "The muted exit environment has meant internal models likely have overestimated cash repaid every quarter to be recycled for other purposes."

Another challenge is analyzing valuation. "Valuation methodology depends on internal [general partner] valuations, which can overstate portfolio company valuations." Sinthunont said.