Photographer: Craig Warga/Bloomberg

Yale Made 93% a Year on Venture Capital in Past Two Decades

  • Original $2.7 million LinkedIn investment reaped $84.4 million
  • Endowment is second-largest in U.S. at $25.6 billion

Yale University’s original $2.7 million investment in LinkedIn Corp. produced $84.4 million in gains for the school’s endowment after the company went public in 2011.

QuickTake Endowments

It’s one example of how venture capital helped propel performance at the second-richest U.S. college endowment of $25.6 billion. Venture capital earned an annual average of 93 percent over the past 20 years, according to the Ivy League school’s 2015 investment report posted on its website.

Under Chief Investment Officer David Swensen, the endowment has moved aggressively into venture capital through commitments to firms including Andreessen Horowitz and Greylock Partners & Co. Such managers have funded the world’s leading technology companies from Compaq Computer Corp. and Oracle Corp. to Facebook Inc. and Twitter Inc. Yale has gained 13.7 percent annually over the past two decades.

“Yale’s venture capital managers are strong, cohesive and hungry teams with proven ability to identify business opportunities early and support talented entrepreneurs as they build early-stage business,” according to the report. “The university’s vast experience in venture capital provides an unparalled set of manager relationships, significant market knowledge, and an extensive network.”

Yale began its venture capital strategy in 1976, participating in early startups of Dell Inc. and biotechnology companies Genentech Inc. and Amgen Inc., according to the report.

Since then, the venture capital portfolio has had a 34 percent annual return. Over the past 10 years the asset class has gained 18 percent annually, outpacing the Standard & Poor’s 500 Index by 10 percent, according to the report.

High Flying

“The high-flying 1990s included lucrative investments in Amazon.com, Google, Yahoo!, Cisco Systems, Red Hat, and Juniper Networks,” according to the report. “Yale’s more recent investments in Facebook, LinkedIn, Twitter, Uber, Pinterest, Snapchat, AirBnB, JD.com and Snapdeal illustrate the home-run potential of venture capital investing.”

Venture capital is expected to return 16 percent in fiscal 2016 for the fund, according to the report. The asset class made up 16 percent of the fund’s asset allocation as of June 30, up from 10 percent in fiscal 2011. The 2015 allocation exceeds the 4.6 percent average for other school endowments, according to the report.

The endowment has produced an investment gain of $35.2 billion over the last three decades. Swensen, who joined the office in 1985, pioneered a strategy that emphasizes diversification and active management of equity-oriented and often-illiquid assets. Many endowments have replicated the strategy but few have achieved such robust returns over the longterm.

Yale’s 11.5 percent return for fiscal 2015 was among the best for college endowments. The average return was 2.4 percent, according to the National Association of College and University Business Officers and money manager Commonfund. For school endowments with more than $1 billion, the average return was higher, at 4.3 percent.

Venture capital was the second-largest allocation at Yale’s fund in 2015 after 20.5 percent in absolute return, followed by 16.2 percent in leveraged buyouts. The fund had 2.8 percent in cash, or some $716 million. Yale also put 4.9 percent in fixed income and increased its stake in foreign equities to 15 percent from 9 percent in 2011.

Yale devoted its annual report to entrepreneurship and technology, profiling successful alumni, including Eli Whitney, who graduated in 1792 and designed the cotton gin; G. Leonard Baker, a 1964 graduate and partner of Sutter Hill Ventures, and Nick Shalek, a 2005 graduate who is a partner at venture firm Ribbit Capital.

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