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By: Bailey McCann, Private Equity Strategies

Investors are finding few bright spots in the world economy, and that’s tempering allocation expectations heading into 2016, according to new data from NEPC. Boston-based NEPC is one of the world’s largest independent consulting firms.

Sixty-seven percent of endowments and foundations say a slowdown in global growth is the greatest near-term threat to investment performance and it’s been trending this way throughout most of 2015. Global economic growth outweighs concerns with rising interest rates, inflation and geopolitical unrest as the greatest threat to the market this year. In part, China is to blame. Seventy percent say a slowdown in China is a near-term concern for emerging markets, but despite talk of emerging market flight, endowments and foundations are not yet ready to sell.

So where are endowments and foundations looking for opportunities? Some respondents say it’s in the energy sector. Thirty-five percent of respondents will make an “opportunistic allocation” to energy-related investments this year. That viewpoint appears to be a boon for private equity firms. 53 percent of respondents said they would increase their exposure to the energy sector through private equity.

As we noted earlier in this issue, oil and gas companies are becoming forced sellers of assets in order to raise cash as oil prices continue to stay at historic lows. Banks are putting the pressure on these companies to find sources of revenue, and very often that means selling assets directly to private equity. So far in 2016, Natural Gas Partners (NGP) has made a 150 million equity commitment to Black Mountain Oil & Gas LLC, an energy company based in Fort Worth, Texas. NGP invested from NGP Natural Resources XI LP, its $5.325 billion private equity fund. Black Mountain maintains oil and gas related businesses across 11 states, but that hasn’t been without headaches of late. “This is a unique and challenging market, said Rhett Bennett, Founder and CEO of Black Mountain.

Houston-based Carnelian Energy Capital Management is also looking to capture deep value opportunities with its new $50 million equity investment in Percussion Petroleum. Percussion Petroleum is a new oil and gas exploration company established in Houston with the express purpose of gathering assets while they are cheap, including conventional wells.

In order to be successful, Cathy Konicki, Head of NEPC’s Endowment and Foundation Practice Group says that investors feel as if there will be a limited window for these opportunities. “Investors believe there are opportunities for return in select asset classes for those willing to move quickly and look past short-term noise,” she said.