Yale boosts venture capital to almost a 5th of its endowment

[NEW YORK] 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 US school.

The fund with a record US$29.4 billion boosted its venture allocation to 19 per cent as of June 2018 from 17.1 per cent the prior year, according to the school's annual investment report published online. The allocation was 13.7 per cent 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 per cent allocation as of June 2018 from 19.3 per cent since fiscal 2014.

Real estate was down to 10.3 per cent from 17.6 per cent in that period.

Hedge funds increased to 26.1 per cent from 17.4 per cent.

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 US$2.7 million investment in LinkedIn Corp produced US$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 per cent, a measure that compensates for external flows, according to the most recent report.

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

BLOOMBERG