Endowments Holdings in Private Investments

University endowments funds are huge in the US. Their money mostly comes from alumni’s donations. Harvard’s, the largest one, reached US$ 53.2B in fiscal year 2021.

Endowment funds play a vital role supporting the teaching, research, and public service missions of universities, and they typically contribute with 15% of their operating budgets.

Thus, historically, endowments needed to set a 7.5% annual target return to cover the universities’ spending plans– with the rising price inflation the goal is now around 8% — which is not an easy task to achieve consistently while maintaining a controllable risk-return tradeoff.

Given their sheer size, the university endowments are able to hire the best funds managers (for instance, David Swensen’s, Yale’s endowment portfolio manager, “Pioneering Portfolio Management” is considered the #1 literature reference) and to access the best performing funds.

So, let’s see the allocation of the largest university endowments relative to alternative or private investments (VC+PE) in fiscal year 2021 (% over the total endowment):

* MIT: 42.7%

* Princeton: 41.9%

* Yale: 41.0% (23.5% VC, 17.5% PE) – pictured above from 1990 to 2020

* Brown: 39.0%

* Northwestern: 35.9%

* Harvard: 34.0% — interesting to notice that in 2020 Harvard’s private investments’ share was “only” 23.0%

* Stanford: 33.0%

For comparison, the Brazilian pension funds (university endowments are almost non-existent in Brazil) allocated 4.8% of the total funds in alternatives vs. 72.9% in fixed income (Mercer, 2020), which helps explain the state of the Brazilian economy.

Conclusion

If the savviest institutional investors have such high exposition to the VC asset class, you as an individual cannot afford not to diversify in VC.

Fabrica Ventures makes it easy to invest in US late stage VC alongside the same top US VC funds that the largest endowments queue up to invest.