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, though it intends to maintain its 23 percent allocation to private equity. Harvard’s $27.4 billion endowment also announced this year it was cutting its manager relationships to counter an “overcrowding” in the market.
Indeed, Stephen Schwarzman, head of The Blackstone Group, said during the firm’s third quarter earnings call in November endowments are “out of business” when it comes to private equity investing.
But not every endowment is in this predicament.
We've been able to get into a lot of great funds as other endowments have been pulling back.
Tulane, which has a 15 percent allocation to private equity, was able to score 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 said about the downturn. “We’ve been able to get into a lot of great funds as other endowments have been pulling back.” The endowment, which has been investing in private equity since 1990, has successfully accessed funds that don’t even market themselves to new investors, Masoudi said.
“We have to use our networks to find them,” he said. “We have rarely invested in funds that approach us or are represented by placement agents.”
Tulane is building out its investment programme and 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.
Tulane also has a 7.5 percent allocation to real assets, which includes real estate and energy investments. The endowment is looking at some real estate funds for potential commitments, but deal volume has been stagnant, Masoudi said. “Transaction volume is very low. Nothing is really moving except for CBD Class A in major gateway cities, which is priced very high.”
While the big endowments work to restructure their programs, Tulane plans to keep pushing ahead, finding quality managers and getting access to funds – even the highest quality funds – that are suddenly open to attracting new LPs.
“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.”