If you can’t do, teach. So goes the age-old adage. However, it’s one platitude that Vanderbilt University’s William Spitz will likely never hear. He not only can do, he has done, and based on the historical performance of Vanderbilt’s endowment, he’s managed to do quite well. Spitz, a clinical professor of management and finance at the university also serves as the school’s Treasurer and Vice Chancellor for Investments, and while he’s been teaching for more than a decade, he considers himself a businessman first, telling Buyouts, “I teach for fun.”
As a professor, Spitz hosts one of the most popular classes at Vanderbilt’s business school, and as successful as he’s been at putting his theories up on the blackboard, he’s proven even more adept at applying his strategies in the real world. During Spitz’s tenure at Vanderbilt, the endowment has earned an annual return of roughly 17%, putting it among the upper 10% of all pension, profit sharing and endowment funds domestically.
On top of his work at Vanderbilt, Spitz is a founder and director of Diversified Trust Co., which runs the DTC Private Equity fund of funds, among other investment vehicles. Additionally, he has also served as an advisor to a number of private firms and advisories, including Council Ventures, The Bradford Funds, and Endowment Advisors, and this past April, Spitz received the 2005 Award for Investment Leadership from law firm Hirtle, Callaghan & Co.
As the head of Vanderbilt’s endowment, Spitz’s expertise spans across many asset classes, but the chancellor calls private equity his first love. “To the extent that I can dabble in the space and spend some time there, it’s a very exciting area, and we’ve done very well there over time,” he adds.
Spitz was first introduced to the asset class in the 1970s, when he arrived at Vanderbilt. The learning curve may have been steep, but it didn’t take too long for the professor to catch on. Through his venture investments, Spitz has been able to participate in some of the industry’s biggest home runs.
He was among those to cash in from Google’s public offering last year, and before that experienced similar windfalls from VC firms that invested in Juniper Networks and Yahoo! “Our LP investment in those three alone was $500,000 and we netted around $200 million,” Spitz says.
Like many university endowments, Vanderbilt has traditionally had a tilt toward venture capital. Part of that comes from Spitz’s early exposure to some of the pioneers in the industry, and he credits the pros at Sequoia Capital with helping introduce him to the asset class. However, Vanderbilt is also among the schools with a new technology transfer program, which attracts potential venture investors and lends itself to the entrepreneurial spirit of the asset class. Furthermore, as an endowment, Vanderbilt has the time horizon that allows it to focus on early stage investing and tolerate the volatility of the asset class.
Nevertheless, even as Vanderbilt’s private equity roots are in venture capital, the endowment’s exposure spread to the buyouts space a little more than five years ago, and the university has been active there ever since. Vanderbilt has established relationships with Apax Partners, Clayton Dubilier & Rice, Zell/Chilmark Partners, H&Q Asia Pacific, Ripplewood Holdings and others. And while Vanderbilt has yet to see its buyout investments generate profits in line with Yahoo! or Google, it has participated in a number of solid winners, such as CD&R’s investment in Kinko’s, ZN Mexico Capital Management’s stake in Homex and Triton’s buyout of Tetra Holdings.
Spitz says his goal is not to necessarily be a home run hitter, but rather to find consistency in performance. “It’s better to consistently hit singles and doubles and avoid the strikeouts,” he says, adding that with that mindset, “[Vanderbilt] has been able to do quite well in the good markets and not too badly in the down markets.”
Today, Vanderbilt has a 15% target allocation for private equity, which is split right down the middle between LBOs and venture.
Few Alternatives Left
Even as Spitz has been an early and faithful proponent of private equity, he’s not necessarily among those happy to see the asset class gain mainstream status. “I worry about it… We won’t be looking to reduce our exposure, although we won’t be increasing it dramatically either. We started pretty early on, but the landslide has now passed us.”
He adds that because of the flow of money into the space, he anticipates that returns will start to diminish, as they have in other alternative assets, such as the hedge funds and timber.
In trying to avoid the inevitability of this, Spitz is left without an answer. “There is no solution,” he says. “The only solution is to cut your spending and decrease liabilities. We’re looking around trying to find the new asset categories that might be appealing, but right now we can’t find any.”
So without any alternative, Spitz’s answer is stay true to private equity. He has diversified by looking overseas, and of the endowment’s total commitment to private equity, 25% of that is dedicated toward investing in international funds. Meanwhile, he adds that like other investors, Vanderbilt may also look to trim its GP base.
The university, Spitz says, has invested in around 150 different PE funds with almost 70 separate GPs. “We’re trying to force ourselves to invest bigger chunks of capital, and if we’re not willing to put in a bigger chunk, we may not make the investment… If there’s too much clutter, then you can’t do the quality monitoring and due diligence that is really necessary.”
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