by Charles Skorina

Yale, in their 2015 annual report issued this month has broken out their private equity allocation into two distinct segments: Leveraged Buyouts and Venture Capital.  See:

http://investments.yale.edu/images/documents/Yale_Endowment_15.pdf

Yale Endowment 2015

This is the first time in many years they’ve offered that level of detail.  And they’ve given the whole report a VC-and-entrepreneurial theme, supplementing the numbers with profiles of some Yale-linked VC heroes and heroines.

It may all seem just a bit self-congratulatory.  But, hey, it’s Yale.  And, in fairness, some congratulations are in order.

The Numbers:

Yale grew its VC allocation from just 10.3 percent in 2011 to 16.3 percent of the portfolio in 2015.  In dollars, their VC holdings now amount to $4.2 billion.

(Only the allocation to Foreign Equity showed comparable growth in the 5-year period, with most other categories flat or declining.  Domestic Equity, unloved at Yale, continues its long, sad march into low single-digits as a fraction of the portfolio.)

VC has also substantially outpaced Dr. Swensen’s target allocation of 14 percent, which suggests that those VC deals are flourishing even better than expected.

By contrast, LBO investments have declined from 24.8 to 16.2 percent of the portfolio in the same 5-year period (in line with their target allocation).  These two opposite trends in VC and LBOs were indiscernible in previous reports when the two categories were mingled.

Yale doesn’t report single-year performance by category, but VC over 10 years has returned an annualized 18 percent, versus just 13.4 percent for LBOs.  Looking forward, they expect VC to generate real (inflation-adjusted) annual returns of 16 percent, with a standard deviation of 38 percent.

One standard performance yardstick for institutional VC investors, offered by Cambridge Associates, has seen just 11.5 percent annual return over ten years.  So, Yale is beating that by a big 6.5 percent.

The report modestly says: “The University’s vast experience in venture capital provides an unparalleled set of manager relationships, significant market knowledge, and an extensive network.”

In a couple of recent newsletters we’ve alluded to the advantages Yale has derived from its carefully-managed alumni network.

See: “You Can’t Clone Yale” here:

http://www.charlesskorina.com/3303-2/

See: “Maybe you can clone Yale” here:

http://www.charlesskorina.com/conversation-russell-read-new-cio-apfc-juneau/

So, let’s take a look at some of the Network as revealed in this report.