Endowment Private Equity

Endowments and Private Equity Commitments

For the last few months, the only stories about private equity and universities have been about colleges taking their endowment funds out of alternative assets because of some major losses. This push away from investing in private equity may be difficult as many college endowments still have capital commitments to private equity funds. For example, the University of Virginia considers doubling its investment in private equity.

University of Virginia Investment Management Co. is obligated to fulfill its commitments of about $2 billion to various fund managers over the next 6 years. The University of Virginia's holdings took a drubbing from investments in alternative assets, from July to May of 2008 the university's $4 billion met with a 22 percent decline. The schools have little choice in their contractual capital commitments to private equity funds although they may be more anxious about investing in alternative assets.

Unfunded capital commitments range from 20 percent to 40 percent of the wealthiest college funds with more than $1 billion in assets, according to John Nelson, an analyst at Moody’s Investors Service in New York. Institutions such as endowments and pensions funds typically agree upfront to invest a set amount with asset managers over a period of years. Not all commitments are called by managers.

Endowment funds do have reason to be hesitant, Commonfund Institute figures that U.S. endowments dropped 24% over the last 6 months of 2008. However, Yale’s endowment fund manager David Swensen, the top-ranked college endowment manager in the past decade. He improved long-term returns by removing holdings of stocks and bonds and buying more real estate, private equity and hedge funds. His model has been photocopied by a strategy that has been copied by colleges nationwide. The strategy is based on the idea that alternative assets outperform even the best traditional investment firms.

Endowments at U.S. and Canadian schools gained an average of 6.5 percent annually in the decade ended June 30, 2008, according to the Washington-based National Association of College and University Business Officers. Yale, based in New Haven, Connecticut, led the group with a 16.3 percent average annual return.

Endowments increased their allocations to alternative investments to 51 percent as of Dec. 31 from 46 percent six months earlier, according to a March survey released by Commonfund Institute.

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Tags: university endowment fund, endowment fund manager, private equity endowment fund, private equity endowment investments, investments in endowments, college private equity

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