As we noted last week, university endowments have been clobbered in the past three months, especially the ones that were trying to “be like Yale.” (Overweight private-equity, hedge funds, commodities, and real-estate; underweight cash and bonds). The situation is so bad that some funds are resorting to fire sales: Harvard, for example, is desperately shopping $1.5 billion of private equity commitments, which it will likely be forced to sell for $750 million or less.
At this point, however, it appears that UVA may win the prize for the most wholesale destruction of alumni gifts. JP Morgan wealth-management strategist Michael Cembalest summarizes the situation:
The endowment’s value as of October 2008 is $4 billion, and they have $1.6 billion in uncalled private equity, real estate and natural resource commitments on top of $1.4 billion already invested. [That’s 75% of the endowment pledged to highly illiquid investments].
The endowment has now announced plans to sell not only public equity, but also several hundred million from hedge funds at a time of illiquid markets, and to explore selling their private equity in the secondary market (a “market” which only exists in the narrowest sense of the word; there’s around $15 billion in buy side funds looking for very steep discounts).
Endowments like UVA’s make annual contributions to a university’s operating budget, so a portfolio with a 75% allocation to private funds (holdings plus future commitments) is a very aggressive one.
Sorry, UVA alumni. You’re going to have to make those gifts all over again.
See Also: Harvard, Yale, etc, Down 25%-30%?
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