Scarcity value

Tulane University’s $1bn endowment has made the most of the financial downturn by getting into top-quality funds.

Many large university endowments in the US have spent the financial downturn trimming back their manager relationships, selling assets on the secondaries market and generally putting the brakes on new commitments to private equity.

Princeton’s $14.4 billion endowment  announced earlier this year it was chopping the number of GP relationships in half. Harvard’s $27.4 billion endowment also announced this year it was cutting its manager relationships.

And Steve Schwarzman, head of The Blackstone Group, said in November endowments are “out of business” when it comes to private equity investing.

But not every endowment is in this predicament.

Tulane University’s endowment, with about $1 billion in assets, has made the most of the financial downturn, slipping into funds to which it would not have had access pre-meltdown, according to Sam Masoudi, a managing director with the endowment.

Tulane, which has a 15 percent allocation to private equity, was able to secure spots in several top quartile funds since the crisis began, including Charlesbank Capital Partners VII, which took about five months to raise $1.25 billion and was heavily over-subscribed.

“It’s been good for us,” Masoudi says about the downturn. “We’ve been able to get into a lot of great funds as other endowments have been pulling back.” The endowment has been investing in private equity since 1990.

“We have to use our networks to find [funds],” he said. “We have rarely invested in funds that approach us or are represented by placement agents.”

Tulane doesn’t use an outside private equity consultant. The in-house investment staff picks and chooses appropriate funds, Masoudi said.

Tulane’s endowment has “generally steered away” from venture funds, where there’s too much capital raised and “it’s not clear if the business model works given the current level of unfunded commitments”, Masoudi said. The portfolio has mostly US exposure, but Masoudi said going forward Tulane may consider increasing exposure to the emerging markets.

The endowment anticipates making eight to 10 commitments to private capital funds – including private equity and real estate – in the next 12 months.
“We have found that the top decile funds that we target are still able to raise funds quickly and are oversubscribed, but want to diversify their investor base and are finding room for some new LPs,” Masoudi said. “Most other funds, especially those with short records, have been struggling to raise capital.”