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Before the pandemic, major U.S. university endowments were already flush with cash.
But as markets have soared in the last year, colleges have unlocked once-in-a-generation gains that are more astronomical than whatever weird multidimensional thing their quantum physics professors are working on. New data shows who they have to thank: venture capital.
Following Yale's Trail
Much to the rest of the Ivy League's chagrin, Yale is a trendsetter. In the 1970s, the school paved the way for major American university endowments — i.e. those with more than $1 billion — by dedicating increasingly larger pockets of its investments to venture capital.
By 2020, major endowments at schools across the country had allocated an average of 11% to VCs, according to The Wall Street Journal. Yale had 16%. The strategy has proven a lucrative and reliable yield, but has gone into overdrive over the past year.
The S&P 500 returned 41% for the fiscal year ending June 30, according to the Journal. And the average valuation of early stage American start-ups has grown over 50% in 2021 so far to $96 million. VCs have passed those gains on to their major endowment clients:
- Endowments with more than $1 billion averaged a 36% return in the fiscal year ending June 30, according to Cambridge Associates.
- The University of Minnesota's endowment gained 49%, the University of Virginia's 49%, Brown University's 50%, and Duke's 56%. The endowment at Washington University in St. Louis posted its biggest return ever, at 65%, bringing it to $15.3 billion.
Just One Example: Take Sequoia Capital. The legendary Silicon Valley VC, which controls over $3 trillion in stock market value, invested $500 million in DoorDash and Airbnb. The two investments are now worth more than $23 billion. Among the participants in its flagship fund: the University of Notre Dame, Harvard, Vanderbilt, Princeton, and Brown.
Give Us a Break: While their alma maters are cashing in, Americans currently hold a record $1.73 trillion in student debt.