For the past ten years, Yale has earned an annualized return of 16% on its venture investments. The fair value of the venture investments is now $4.3 billion, which represents 16.2% of the $26 billion Yale Endowment. The results were included in annual financial statements for the university dated October 31, 2016.
The Yale Endowment began moving away from traditional stocks and bonds to alternative assets, such as venture capital, after David Swensen took over as CIO in the early 1980s. For the past six years, venture investments, as percentage of the total endowment, grew from 10.3% in 2011 to 16.2% in 2016. For the past three years, the venture investments’ fair value has risen from $3.5 billion in FY 2014 to $4.3 billion in FY 2016.
More than the size of its investments, Yale Endowment’s commitment to venture capital is probable most important. As an endowment, Yale is the ultimately long-term investor, who can wait to see the returns from venture investments; this is unlike recent venture investors such corporations, hedge funds, and mutual funds who may have shorter time horizons.
As an early investor in venture capital among university endowments, Yale was one of the first to established relationships with top tier venture capital firms. These ties have allowed Yale to be successful with its venture investments while other endowments have struggled. For example, Harvard’s endowment also announced FY 2016 results, including those for its venture investments. Harvard’s annualized return for the past five years was 6.2% and negative 1.5% for FY 2016.