Yale endowment under fire for PE fees

An opinion piece in the New York Times has brought scrutiny on the university and put a mainstream spotlight private equity costs.

In another installment of the public debate over private equity fees, a New York Times opinion piece has scrutinised Yale University’s endowment for spending more on private equity fund managers than on Yale students.

The piece, written by University of San Diego tax professor Victor Fleischer, alleges that Yale paid approximately $480 million to private equity fund managers last year ($137 million in management fees and $343 million in carried interest) to manage about $8 billion, one-third of Yale’s endowment.

In contrast, only $170 million was earmarked for tuition assistance, fellowships and prizes, Fleischer claims.

The piece has put private equity fees into the public spotlight yet again, drawing a heated response on Twitter from author Malcolm Gladwell (who incorrectly targeted hedge funds in his tweets rather than private equity funds). “I was going to donate money to Yale. But maybe it makes more sense to mail a check directly to the hedge fund of my choice,” Gladwell tweeted.

Some commentators have also taken issue with Fleischer’s arguments. Dan Primack of Fortune called private equity the “straw man” in Fleischer’s argument, noting that the asset class has generated 15.4 percent annual returns over the past decade for the endowment.

Fleischer is also known in the industry for his study “Two and Twenty: Taxing Partnership Profits in Private Equity Funds,” which advocates changing the tax treatment of carried interest from capital gains to ordinary income.