Most university co-eds will try their hands at intramural sports at some point in their college careers, while others will get that first taste of politics running for a spot on the student council. In a sign of how times have changed, today some universities now offer a sort of intramural private equity program, where students get to try their hand at investing real capital into real companies.
The University of Utah has raised a $5 million private equity fund, the University Venture Fund (UVF), which became the first and largest student-run private equity fund with outside capital. While it is a far cry from the $6.5 billion Blackstone Group raised in 2003 or the $8 billion Warburg Pincus is currently looking to raise, the University Venture Fund is still very much the real thing. There is a 2.5% management fee, a 20%/80% carried interest split, a standard 10-year investment window and most important, limited partners that expect to see returns. The LPs include UBS Bank, Morgan Stanley and Tim Draper.
The idea to create a fund as a learning aid was hatched by Dominion Ventures Founder Geoff Woolley, who came up with the concept when he returned to his alma mater as a guest lecturer in 2000. Jared Hutchings, a recent graduate of Utah, and the managing director of Utah’s fund, said, “I started working on the fund as a senior in 2001. We basically went out and talked to the buyout shops and venture capital firms and asked if we could do the due diligence on their deals… It took awhile to develop relationships and earn trust, but were able to show that we were earnest about the work.” And from there, he said, the concept took off.
While The University of Utah has the largest student-run private equity fund, it is not only student-run investment vehicle. Cornell sponsors BR Ventures, which is run out of the Johnson Graduate School of Management, while the University of Michigan’s $2.6 million Wolverine Venture Fund has been operating since 1997. What differentiates Utah from the others though, is it is one of the few that will invest in buyouts and is the only fund that has raised money from outside sources.
Sorenson Capital Founder James Sorenson was the initial donor that got the fund off the ground, and his firm is listed as an investment partner to UVF. Texas Pacific Group, Bain Capital, and Peterson Capital are among the other buyout shops listed as investment partners, while UV Partners, vSpring Capital, Canaan Partners and Thomas Weisel Partners are just a few of the venture firms that work with the fund.
“As a rule, you won’t see us lead an investment,” said Hutchings. “We’re passive investors in a generalist fund. The deals will primarily come from our partners.” He added that while UVF has not established a set allocation model, he expects deal flow to be split roughly 60%/40%, between venture capital and buyouts. And the fund participants will primarily take on the same functions as in the past, with due diligence serving as the primary responsibility.
Ru! Rah! Rega!, PE mega!
Even as private equity may be a new entree to some colleges’ activity lineups, don’t expect students to trade in their Birkenstocks for wingtips just yet. For one, the students are not paid. So while the real pros can uncork the Roederer Cristal following a successful deal, the UVF principals can settle for a cold Natty Light (if they are of age). Most of the GP profits that come from the fund will go toward scholarship programs for incoming students, while the balance will go back into the investment pool in order to make the fund self-sustaining for future classes. Fund participants gain school credit as an elective in either finance or engineering.
Even without the cash incentive, gaining entry can be difficult for students. Typically, there are 20 people that apply for the fund to every one that actually gets a spot. In all, there are 30 participants in the program, mostly undergraduate students, who dedicate approximately 20 hours a week to the fund. Advocates of the fund say it allows for real-world experience and can provide an opportunity to make contacts within the business community. Roughly 50% of the students that participated in the program have found a job directly through associations made at UVF.
Interestingly, though, Hutchings said most participants are not even joining the fund with designs on being the next Henry Kravis or David Bonderman. “It’s not realistic for most students to go into private equity directly out of school (as an undergraduate). We’re not really trying to groom the next buyout guys, we’re just trying to teach business… Besides, most VCs tell us there is more money to be made on the entrepreneurial side than in private equity.”
With that said, the fund has had some alumni find work in the PE business. Jason Robbins was recruited by Golub Associates, while a few others have gone on to work at various venture capital firms. There are also those who have used their experience to start a company that needed venture backing.
Even as UVF currently stands as the lone college offering with outside capital, other universities are watching this fund with an eye on starting their own. In mid-January, Utah hosted its second University Private Equity Summit. At the conference, Hutchings said, “We received a lot of interest from schools asking how they could go about setting up something like [UVF].” It is expected that more schools will attempt to start similar programs. And if people thought KKR and Forstmann Little could get competitive in the boardroom, just wait until the University of South Carolina and Clemson face off for a deal.
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