Colleges See Best Gains in Decades Thanks to Private Investments
(Bloomberg) -- Soaring returns at venture capital funds juiced results across U.S. university endowments, propelling one investment for Michigan State University’s $3.9 billion fund to an eye-popping 1,000% gain.
Universities saw their endowments swell by billions of dollars after a year which by one estimate could be the sector’s best since the mid-1980s. Powered by specific pandemic-related gains and a macro environment that’s been a boon to private investment funds, colleges are reaping returns that may not be seen again for a generation.
“There will probably be nothing like this in our lifetime,” said James Clarke, senior vice president of investments and treasurer of the Kansas University Endowment Association. “It almost felt like 2021 was the realization of the promises we were made about the internet 20 years ago -- we spent our lives doing virtual meetings on Zoom with products delivered to our door and unlimited Netflix.”
About 30 venture funds that Kansas has invested in posted triple-digit gains, he said.
Equities have been surging in recent years in part due to historically low interest rates pushing investors into higher-yielding options. At the same time, venture funds have benefited from a growing number of companies staying private for longer, as well as more money chasing the next big thing.
Venture’s focus on tech companies has also helped, as the pandemic accelerated technology trends such as remote work.
“It resulted in an accelerated adoption of online services, which a lot of people expect will continue,” said Anders Hall, chief investment officer of Vanderbilt University, which saw a 57% return. “Trends that were going to happen anyway, but happened more quickly.”
There were also gains more directly tied to the Covid-19 pandemic. The 65% return at Washington University in St. Louis through June 30 was helped by a co-investment in vaccine-developer Moderna Inc., which rose about 280% in the period.
The school’s global equity portfolio gained 71.5% and its buyout, venture capital, distressed debt and growth equity investments advanced 82%, said CIO Scott Wilson.
At Michigan State, which saw its endowment return 41%, some of the biggest growth came from investments in fintech such as blockchain, and other technology including services that support online payments, said CIO Phil Zecher.
“Our whole private investment portfolio did extraordinarily well with venture up over 100%,” he said.
Some of the performance is unrealized gains, said Hall of Vanderbilt, where returns boosted its fund to $10.9 billion. Venture funds won’t actually deliver the gains until they can exit the investments, usually through initial public offerings. Even then, some firms continue to hold onto public companies, such as Airbnb Inc. and DoorDash Inc., said Hall. He declined to comment about specifics in the school’s portfolio.
“The positions in the companies themselves are so big it’s going to take a lot time to unwind these,” said Allen Huang, director of investments at Michigan State. “There’s a lot of volatility in those prices when they’ve finally liquidated and returned to limited partners, the endowments, they could be less.”
The endowment of Bowdoin College, a liberal arts college in Maine, returned 57%, boosting its value to $2.7 billion, said Clayton Rose, the school’s president. Public markets created a tailwind and many of the investments that performed well were made years ago, he said. He didn’t provide details.
Bowdoin was also helped by the fact that it had liquidity in the endowment during the worst of the pandemic and didn’t need to sell anything at the bottom of the market “in a distressed way that we would regret later,” said Rose, a former banker and Harvard Business School professor.
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