Yale Boosts Venture Capital to Almost a Fifth of Its Endowment

(Bloomberg) -- Yale University increased its venture capital allocation to almost one-fifth of its endowment, after the asset class helped drive returns for the third-richest U.S. school.

The fund with a record $29.4 billion boosted its venture allocation to 19 percent as of June 2018 from 17.1 percent the prior year, according to the school’s annual investment report published online. The allocation was 13.7 percent in 2014.

Yale, one of the most-watched institutional investors, helped pioneer a pivot to alternatives more than three decades ago.

This year’s report shows a heavy commitment to alternative investments, though the mix is changing:

  • Leveraged buyout funds shrunk to a 14.1 percent allocation as of June 2018 from 19.3 percent since fiscal 2014.
  • Real estate was down to 10.3 percent from 17.6 percent in that period.
  • Hedge funds increased to 26.1 percent from 17.4 percent.

The annual report often provides nuggets of insight from the endowment, which has been run by Chief Investment Officer David Swensen since 1985. One theme in 2015 was “the home-run potential” of venture investing, where the payoffs can be huge even with many swings and misses. Yale’s original $2.7 million investment in LinkedIn Corp. produced $84.4 million in gains for the endowment after the company went public in 2011.

The venture capital portfolio’s 20-year time weighted return is 24.6 percent, a measure that compensates for external flows, according to the most recent report.

The endowment returned 12.3 percent, net of fees, for the year through June 2018, trailing some schools whose investment chiefs trained at Yale, including Bowdoin College at 15.7 percent and Princeton University at 14.2 percent.

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