The University of Michigan’s Endowment, known for investing in some of Silicon Valley’s most significant venture capital firms, has reduced its investments in private funds. The key points include:
- The Endowment cut its new venture capital and private equity investments by over 40% in the fiscal year ending June 2023.
- The investments went down from more than $1 billion committed during the 2022 fiscal year to $580 million in 2023.
- University’s Endowment severed ties with nine private fund managers in 2023, compared to four a year before.
- It still maintains substantial investments in venture capital and private equity, with approximately 40.9% of its portfolio invested in these areas.
These findings suggest a shift in strategy for the University of Michigan’s Endowment amidst an increasingly competitive fundraising market. While reductions have been substantial, the University maintains a substantial investment in venture capital and private equity funds. This commitment can still be seen in its annual report, which states that an estimated 40.9% of their portfolio is invested in venture and PE funds as of June 2023.
Despite this, the University’s Endowment reported an annualized investment return of 0.7% for its PE and VC investments, a notable contrast to the industry benchmark of -3.4%. The endowment’s latest annual report emphasized that “while performance of venture capital can be potentially volatile in the short term, it has been one of the best performing areas of investment over the long term.” It cited a 20-year annualized rate of return of 16.7% for that asset class.
This move highlights the growing competitiveness of the fundraising market, which is proving challenging for first-time fund managers looking to raise a fund. In contrast, CalPERS, a significant investor in the venture capital market, has opted to further invest as others get cold feet or reconsider their strategies.
Despite the reduced commitment, the University of Michigan still remains an influential limited partner in many of Silicon Valley’s most well-known venture capital firms, such as Sequoia Capital, Andreessen Horowitz, Accel, General Catalyst, and Y Combinator.
