Yale Clears Air on Venture Returns (and Cautions on the Limits of IRR)

blogs.wsj.com

The $25.57 billion Ivy League endowment has cleared the air on its track record: The 92.7% return over the 20 years ended June 30 is the venture portfolio’s internal rate of return, which was lifted by outsized performance during the years of the dot-com boom, according to a statement from David Swensen, Yale’s chief investment officer.What that number isn’t, he stressed, is the portfolio’s time-weighted return over 20 years. Calculations of annualized time-weighted returns give equal weight to the performance of each year and assume distributions get reinvested so the returns compound over time.

If Yale had been able to compound a 92.7% return over two decades, the venture portfolio would be much larger than the 16.3% share of its endowment assets as of June 30. “Obviously, we are not able to reinvest our VC cash flows at a 92.7% rate of return,” Mr. Swensen said.

As a point of contrast, the 20-year time-weighted return for Yale’s venture capital program was 32.3% in the period ending June 30. A more objective measure of the venture portfolio’s returns might be the 18% annualized IRR for the 10 years ended June 30. Since Yale launched its venture capital portfolio in 1976, the program has delivered a 33.8% annualized IRR.

Add a comment

We are in testing

We'd love to get your feedback on how to improve these resources and your suggestions for any articles that you'd like to see featured. Contact us with feedback and suggestions on [email protected]