VC 101: What University Endowments Can Teach Investors About the Value of Diversification
Endowments have benefited from long-term increases in venture capital and other alternative assets
In this episode of our VC 101 series, we discuss the growing trend among colleges of universities to increase their endowment investments in venture capital and other alternative assets — and what individual investors can learn from their example.
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An endowment is an aggregation of assets that support a college’s educational and research mission. It’s comparable to a rainy-day fund and a good indicator of a school’s financial health. The bigger its endowment, the more a school can invest in long- and short-term goals such as boosting scholarships aid, hiring new faculty, or upgrading facilities.
According to a 2022 study by TIAA and a national association of college business officers, VC and private equity accounted for 30% of endowment investments on average, building on a growing trend over two decades. For schools like Brown, that number was as high as 43%. The larger the endowment, the more of its allocations were invested in alternative assets — and the better those endowments tended to perform compared to smaller endowments with less exposure to those assets.
Yale Endowment as of June 30, 2021 1, 2
The Yale endowment earned 40.2% investment return in FY 2021.3
1. Financial Report 2020–2021 Yale University, Investments at NAV as of June 30, page 38
2. The Yale Endowment, 2021, Endowment Market Value, page 2
3. “Yale endowment earns 40.2% investment return in FY 2021,” Yale News, Oct. 14, 2021
As in prior years, larger endowments show far less reliance on fixed income and domestic public equities. The shift from public equities toward private equity and venture capital reflects the willingness and the ability of larger institutions to reach for higher return targets.
We believe the data in this study presents a clear case study of the value of portfolio diversification. The numbers in this report tell us that a more diverse portfolio can offer potentially significant risk mitigation features that can make a big difference in overall returns.
Alumni Ventures provides access to venture capital for accredited investors in an unprecedented way. Once solely the domain of large institutions and ultra-high-net-worth individuals, AV has helped with democratizing access to the venture capital asset class. We help accredited investors build a portfolio of promising startups to tap into the high-potential value of private companies before they go public.
“Large institutions shouldn’t be the only ones benefiting from such diversification and risk mitigation. Individual investors deserve the same opportunities, and that’s exactly why Alumni Ventures has set out to democratize the venture asset class and provide professional grade venture portfolios to individual accredited investors.”
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Luke Antal
Co-Founder & Chief Community Officer, Alumni VenturesLuke Antal is a Co-Founder of Alumni Ventures and is an experienced startup and tech executive with a focus on marketing, sales operations, and customer experience. As the firm’s Chief Community Officer, Luke has built and oversees many of the processes, systems, and teams that contribute to the firm’s fundraising initiatives. He has scaled many startups as a founder or employee #1. He is the Founder of the AV Venture Fellow Program, which is a one-of-a-kind career accelerator and educational experience that is a groundbreaking on-ramp to a career in VC. Luke has an AB in Environmental Studies from Dartmouth College.
Contact [email protected] for additional information. To see additional risk factors and investment considerations, visit av-funds.com/disclosures.