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Endowments

Yale boosts venture capital bet to almost a fifth of endowment

Sterling Memorial Library on the Yale University campus

Yale University increased its venture capital allocation to almost a fifth of its endowment, after the asset class helped drive returns for the third-richest U.S. school.

The fund with a record $29.4 billion boosted its venture allocation to 19% as of June 2018 from 17.1% the prior year, according to the school's annual investment report published online. The allocation was 13.7% in 2014.

Yale, one of the most-watched institutional investors, helped pioneer a pivot to alternatives more than three decades ago.

This year's report shows a heavy commitment to alternative investments, though the mix is changing:

Leveraged buyout funds shrunk to a 14.1% allocation as of June 2018 from 19.3% since fiscal 2014. Real estate was down to 10.3% from 17.6% in that period. Hedge funds increased to 26.1% from 17.4%.

The annual report often provides nuggets of insight from the endowment, which has been run by Chief Investment Officer David Swensen since 1985. One theme in 2015 was "the home-run potential" of venture investing, where the payoffs can be huge even with many swings and misses. Yale's original $2.7 million investment in LinkedIn produced $84.4 million in gains for the endowment after the company went public in 2011.

The venture capital portfolio's 20-year time-weighted return is 24.6%, a measure that compensates for external flows, according to the most recent report.

The endowment returned 12.3%, net of fees, for the year through June 2018, trailing some schools whose investment chiefs trained at Yale, including Bowdoin College at 15.7% and Princeton University at 14.2%.