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


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.

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