Oxford Endowment’s 3-year PE returns top 20%

Heavy investment in equity, both public and private, has generated top-end returns since the fund’s inception in 2009.

The £2.34 billion ($3 billion; €2.6 billion) Oxford Endowment Fund posted robust results for 2016 bolstered by strong performance from its private equity portfolio.

The fund, managed by Oxford University Endowment Management, returned 16.4 percent in the 12 months to 31 December, boosting its annual distribution to £82.1 billion, according to its latest report.

Oxford Endowment Fund holds 68.6 percent of its assets in equity, of which 24.5 percent is in private equity. Its private equity portfolio delivered a three-year annualised net return of 23.7 percent to 31 December.

“In the last three years, private equity has begun to make a significant impact,” the report said. “It takes several years to build meaningful investments in private equity, and the care taken in selecting strategies and managers has paid off with these investments generating a 19.3 percent net IRR since inception.”

The five-year annualised net return for the portfolio was 20.5 percent. Meanwhile, its public equity portfolio has returned an annualised 13.9 percent over the last five years. Since inception it has delivered 12 percent.

The endowment said its private equity investments are predominantly in the US, UK and China and in sector specialists, growth equity and special situations.

“Investments in conventional ‘buyout’ strategies are limited,” it said.

Across its whole all asset classes, Oxford Endowment has the greatest exposure to the consumer sector (24 percent), an attempt to “harness growth in both developed and developing markets”.

This is followed by cash & bonds and industrials (both 16 percent each) and financials (13 percent). The fund has seen less opportunity for growth in “more mature, capital intensive and heavily regulated sectors” such as energy. The fund has the least exposure to that sector, at just 2.3 percent.

In the report, the endowment said that, while it invests for the long term, it was “frequently reminded” during the course of 2016 of the need to “manage macroeconomic and political risks”.

“Our approach to risk management is not to spend significant amounts of time forecasting precise outcomes of inherently unstable events, but to ensure that the Fund has the appropriate balance of opportunities and protections in a range of developments,” the report said, adding that the most significant risk for UK investors last year was the referendum on EU membership.

“We spent time understanding the potential impact of this specific binary event, and planned clear practical outcomes for either result.”

Its analysis concluded that in the event of an “out” vote, Sterling “would be the release valve”, and thus it adjusted its exposure to “the lower end” of its permitted Sterling range of 40 percent to 70 percent.

As of 31 December, the fund’s currency exposure to Sterling was 54 percent.

“Further to the result, we moved quickly to add capital to public markets which fell significantly, using our position as long term investors to take advantage of a market overwhelmed by short term fear.”