The $29.4 billion Yale University endowment increased its venture capital allocation to 19 percent as of June 2018 from 17.1 percent the prior year, according to its 2018 report. The endowment did exceed its 18 percent 2018 target for the sector.
The combination of quantitative analysis and market judgment employed by Yale produces the following portfolio:
The venture capital portfolio earned an annualized return of 16. percent for the 10 years ending June 30, 2018, exceeding its composite passive benchmark by 3.6 percent per year and the Cambridge Associates venture capital manager pool by 5.1 percent per year.
The heavy allocation to nontraditional asset classes stems from their return potential and diversifying power. Today’s actual and target portfolios have significantly higher expected returns than the 1988 portfolio with similar volatility. Alternative assets, by their very nature, tend to be less efficiently priced than traditional marketable securities, providing an opportunity to exploit market inefficiencies through active management. The endowment’s long time horizon is well suited to exploit illiquid, less efficient markets such as real estate, natural resources, leveraged buyouts and venture capital.
Yale’s endowment generated a 12.3 percent return, net of fees, in fiscal 2018. For six of the past 10 years, Yale’s 10-year record ranked first in the Cambridge Associates universe. Spending from the endowment grew during the last decade from $850 million to $1.3 billion, an annual growth rate of 4.2 percent. Next year, spending will amount to $1.4 billion, or 34 percent, of projected revenues.
To read the full report, click here.
