University Endowments Mint Billions in Golden Era of Venture Capital

Large college endowments have notched their biggest investment gains in decades, thanks to portfolios boosted by huge venture-capital returns and soaring stock markets.

The University of Minnesota’s endowment gained 49.2% for the year ending June 30, while Brown University’s endowment notched a return of more than 50%, said people familiar with their returns, which aren’t yet public.

Meanwhile, Duke University over the weekend said its endowment had gained 55.9%. Washington University in St. Louis last week reported a 65% return, the school’s biggest gain ever, swelling the size of its managed endowment pool to $15.3 billion. The University of Virginia’s endowment reported a 49% gain. Universities’ returns may include portions of endowments, plus other long-term investments.

The string of blockbuster returns is likely to continue when other endowments with significant venture exposure report their performance.

Venture-capital funds invest in startup companies, often in early stages when the companies need funding to grow their businesses. A few years ago, venture-capital investors were elated when companies went public with multibillion-dollar valuations. Today, the biggest hits are often companies worth tens of billions of dollars, delivering staggering profits to the early investors.

Duke University over the weekend said its endowment had gained 55.9%.

Photo: Veasey Conway for The Wall Street Journal

“You’ve had this unique environment where there’s this phenomenon of more money coming in, more financing rounds and a ton of IPOs. Everything’s worked,” said Nolan Bean of Cincinnati-based investment consulting firm Fund Evaluation Group, which advises clients, including endowments, on their portfolios.

But it is unclear whether universities will be able to hang onto those gains. Some portion of venture funds’ internal rates of return often stems from unrealized gains, and a growing number of venture capitalists and their clients worry that the market is overheated.  Startup valuations have recently surged far faster than revenues or profits. Endowments could give back some of those returns, if valuations collapse.

Soaring stock markets around the world undergirded the once-in-a-generation gains. The MSCI All Country World Index and the S&P 500 had total returns of nearly 40% and 41% for the period, according to FactSet. Those gains are reflected in the median 36% return over that period for endowments managing more than $1 billion, according to preliminary data from Cambridge Associates.

Schools with significant allocations to venture capital were further boosted by funds in nearly all stages of their life cycle seeing large returns from both realized and unrealized gains.

Venture capital is on track to see its greatest returns since the dot-com boom of the late 1990s. Fueling this golden era of venture is extraordinary investor appetite for fast-growing companies, as valuations of startups and newly-listed tech companies have soared—even as profits remain in short supply. Low interest rates and a paucity of other attractive opportunities have helped, too.

Buzzy startups have seen their valuations soar particularly rapidly. Corporate credit-card company Ramp, which launched early last year, has raised two rounds of financing already this year, with the company’s valuation rising to nearly $4 billion, an extraordinary run for a two-year-old startup.

The average valuation of an early-stage U.S. startup shot up to $96 million in the first half of 2021, up over 50% from the $61.7 million at the end of 2020, according to PitchBook.

Beneficiaries include top venture firms like Sequoia Capital, which invested less than $500 million between both DoorDash Inc. and Airbnb Inc. Today those two investments alone are worth over $23 billion. Many of those gains are split between two of Sequoia’s main U.S. venture funds, each of which raised less than $600 million from investors.

Although Sequoia is mum on its specific investors, a securities filing in 2014 revealed the roster of investors in its flagship fund was filled with university endowments. Those schools included the University of Notre Dame, Harvard University, Vanderbilt University, the University of California system, Princeton University, Bowdoin College and Brown.

Outsize gains are likely to be concentrated among big endowments. Those managing more than $1 billion had an average venture allocation of 11%, according to a 2020 study by the National Association of College and University Business Officers and TIAA. That portion dropped to 5% for endowments managing $501 million to $1 billion.

Brown University’s endowment notched a return of more than 50%.

Photo: Lane Turner/The Boston Globe/Getty Images

Some schools have far more.

Yale University, which made its first venture investment in 1976, had more than a quarter of its endowment in venture recently, up from 16.2% in 2016. Yale in August named the endowment’s venture head, Matthew Mendelsohn, as the endowment’s new chief investment officer.

Far from taking a victory lap, investment chiefs are playing down their performance.

“This past year represents a single, highly unusual point in time,” wrote Robert Durden, investment chief for University of Virginia Investment Management Company, in the endowment’s annual report in September, “and UVIMCO’s investment performance over the past few decades is really what matters.”

Mr. Durden went on to write, “We don’t know what lies ahead.”


What should colleges do with their investment gains? Join the conversation below.

Endowment chiefs say they want to avoid focusing on short-term gains when they invest for the long haul. Endowments—which fund financial aid, faculty salaries and capital projects—often aim to generate a school’s annual spending rate, inflation, plus a little extra to support current and future generations of students.

But the reticence of endowment chiefs could be driven partly by worries over whether they will be able to hang on to those returns if valuations collapse.

Huge returns could also highlight the widening gap between the rich and poor during the pandemic. Booming stock markets have benefited wealthy individuals and institutions at the same time that low-income groups have struggled, resulting in an uneven recovery.

The numbers also could rekindle debate around a touchy topic: whether—and how—much wealthy universities should be taxed. Some universities have been criticized for not spending more of their money to reduce tuition and support low-income students. A tax of 1.4% on college endowments’ income was enacted in the 2017 Tax Cuts and Jobs Act signed by President Donald Trump, affecting private schools with at least 500 students and at least $500,000 of investments per student.

Democrats are now aiming to soften the blow of the tax. The House Ways and Means Committee recently approved a provision that would phase out the tax for schools based on how much financial aid they award to students as a share of tuition costs. That provision is part of the broader spending and climate legislation that lawmakers are still debating.

Write to Juliet Chung at and Eliot Brown at

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