Yale Endowment’s venture portfolio poised to generate high returns

  • Expected to return 16 pct in 2018
  • Actual venture capital allocation was 17.1 pct in 2017
  • Venture capital performance beats benchmarks

Yale Endowment’s venture capital portfolio is expected to return 16 percent in 2018, the highest among all asset classes, according to a recent report by Yale Investments Office, which manages the near $27.2 billion fund.

At 17 percent, Yale Endowment’s investment in VC represents the largest asset allocation in its alternatives portfolio, which includes leveraged buyouts, natural resources and real estate.

Yale Endowment’s venture portfolio generated an annualized rate of return of 14 percent, exceeding its passive benchmark by 6 percentage points per year and the Cambridge Associates VC pool by 4.6 percentage points per year in 2017, the report said.

The return lagged, however, the 10-year annualized return of 15.9 percent for the period ending June 30, 2016. Then, Yale Endowment’s venture portfolio exceeded its composite passive benchmark by 9 points per year and the Cambridge Associates VC manager pool by 5.5 points per year, the 2016 endowment report shows.

Yale Endowment’s VC allocation has risen significantly in the past three years. In June 2015, when Yale Endowment separated its VC and LBO portfolios, venture had a 14 percent target allocation. It increased to 16 percent in 2016 and is now at 17 percent.

Yale Endowment was a pioneer in alternative investing, having committed to PE and VC funds in the 1970s.

Among the prominent venture firms it has backed are Andreessen Horowitz, Benchmark and Greylock Partners.

In turn, these venture firms and others have invested in a number of high-flying tech companies, which in recent years included Facebook, Airbnb and LinkedIn.

The endowment reported that its $2.7 million investment in LinkedIn, via venture firms that backed the professional networking company, generated $84.4 million in gains when LinkedIn went public in 2011, according to its 2015 report.

The 20-year time-weighted return for Yale Endowment’s venture portfolio is 25.5 percent, and the endowment remains optimistic on the asset class.

“The university’s venture capital portfolio contains an unparalleled set of manager relationships, significant market knowledge, and an extensive network,” the report said.

Yale Endowment returned 11.3 percent, net of fees in 2017. David Swensen has been chief investment officer since 1985. Timothy Sullivan oversees the endowment’s LBO and VC portfolios.

Action Item: Read more here Yale Endowment Report 2017

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