UVA: Sorry, Alumni, We Gambled Our Endowment And Lost

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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