Virginia endowment ‘disappointed’ by PE returns

The university’s investment management arm had private equity returns of 5.6% for the year ended 30 June, up from a 3.9% loss the previous year.

University of Virginia’s $8.6 billion endowment has said it is “disappointed” with its one-year private equity returns, despite returning to profit after a loss last year.

The university’s investment management arm posted a 5.6 percent return for private equity during the fiscal year ended 30 June, up from a 3.9 percent loss the previous year, according to its 2017 annual report. The endowment had a 15.7 percent allocation to private equity as of 30 June, representing a $1.4 billion market value.

Total equities, which reflected 62 percent of the endowment’s long-term pool, also returned 13 percent for the year, up from a 3.6 percent loss in 2016. Despite this growth, the pool’s equity returns underperformed compared with its 19.4 percent benchmark, as established by the MSCI All Country World Equity Index.

“Overall, the long-term pool’s equity portfolio rebounded strongly from last year’s negative returns but lagged behind its respective benchmark,” the report noted. “While we are disappointed with the one-year returns of both our long/short and private equity portfolios, we do not overanalyse the short-term performance of any strategies and instead focus on long-term results.”

The endowment reported a 14 percent return for private equity over the past five years, outperforming its 11.1 percent benchmark. Private equity delivered 20-year annualised returns of 18.9 percent, significantly exceeding the 5.9 percent MSCI ACWE benchmark.

“While we are gratified by this outperformance, we expect outsized returns to be increasingly difficult to achieve in the future due to high valuations in equity markets,” the report said.

UVIMCO’s long-term pool, which also includes a 25.9 percent allocation to total fixed income, cash and multi-asset credit and a 12.1 percent allocation to real assets, generated 12.4 percent returns over the period.

The results coincided with news that Lawrence Kochard, chief executive and chief investment officer at UVIMCO, will step down at the end of 2017 after seven years in the role, according to a statement. Kochard will pursue opportunities in the private management sector.