Small College Endowments Find A Way To Pledge

Three small colleges, Kenyon College, University of Houston and University of Kentucky, plan on pledging to private equity funds.

The $150 million Kenyon College Endowment still intends to commit anywhere from $2 million to $10 million to the illiquid alternative asset class over the next 12 months, said Joe Nelson, vice president for finance, even though it lowered its target allocation earlier this year to 15 percent from 25 percent.

The limited partner adopted the new asset allocation model to achieve greater portfolio liquidity, Nelson said. The new target for illiquid alternatives of 15 percent is far below the actual allocation of 28.3 percent. “We understand that it will take a while to get to our new target and are willing to be patient as earlier investments enter the harvest and liquidation stages of their fund lives,” Nelson said, adding that there are no plans to sell off any positions in the secondary market.

The endowment just re-upped with Yorktown Partners’s Yorktown Energy Partners IX, but the new commitment of $2 million was less than half the limited partner’s pledge to the firm’s prior fund. “It’s depressing” that the commitment had to be smaller, Nelson said. “They are a great manager and a great diversifier in my portfolio.”

Kenyon College, Nelson added, has a single allocation to illiquid alternative assets and does not have sub-allocation targets to venture capital, private equity, real estate or mezzanine debt. “The bar for new commitments is extremely high right now. Our allocation decisions will be driven more by the quality of the manager than it will be driven by targeting a strategy,” he said.

Over at the $491 million University of Houston System Endowment, the LP is aiming to commit $8 million to private equity in the next 12 months, according to Treasurer Raymond Bartlett. Areas of interest include distressed, special situations and secondaries. The actual allocation to private equity is 1 percent, the same as the interim target. The long-term target allocation is 5 percent.

The University of Kentucky Endowment has about 3.6 percent of its $800 million allocated to private equity and plans to build the allocation to its 7 percent target over the next few years, said Assistant Treasurer for Investments Susan Krauss. The LP is doing some forecasting to determine the optimal amount to commit in the next few years and is evaluating different private equity strategies, she said.