Wednesday, December 16, 2009
Some Better News For An Endowment Using the "Yale Model" for Investing
After all the bad news regarding endowments using the "yale model" with a heavy weighting towards "alternative asset classes" such as venture capital, the year end news is much more positive: Nevertheles imo the issue of limited liquidity and potential liquidity crises due to venture capital investments, has not gone away. I'll leave it to readers to decide whether Stanford dodged a bullet in terms of liqudity needs or if this proves the efficacy of the strategy,
my bolds my comments in blue
Stanford Cancels Private Equity Stake Sale as Endowment Gains
By Gillian Wee
Dec. 15 (Bloomberg) -- Stanford University, the fourth wealthiest school in the U.S., canceled its plans to sell portions of its $6 billion in buyout funds, distressed securities and energy funds, as its endowment gained in the last six months.
“We didn’t have to have the liquidity,” John Powers, chief executive officer of Stanford Management Co., said today in a telephone interview. “As we felt better about the liquidity situation, we’ve been more price-sensitive and felt less the need to sell.”
Stanford, near Palo Alto, California, decided not to sell its stakes as its endowment made money over the last six months, Powers said. The school was seeking to sell as much as $1 billion, or 8 percent of its $12.6 billion fund to capitalize on rising private-equity values tied to the 60 percent increase in stock prices since March. The university’s investments lost 26 percent in the 12 months ended June 30.
It seems from the above that the reason that Stamford didnt need to sell its venture capital stakes was because it's liquid uinvestments increased in value (along with the overall equity market) enough to meet their liquidity needs. It also seems from this (below) that the buyers wanted to cherry pick from Stanford's holding interested in buying the assets that Stanford was probably least interested in selling. Also note that one category the potential buyers were interested was growth equity, a highly liquid asset class
Stanford’s bidders, a mix of secondary funds and sovereign wealth funds, were most interested in its buyout funds, followed by growth equity and natural resources, Powers said. The school’s decision to cancel the auction was first reported today by the Wall Street Journal.
Stanford’s buyout funds comprised a quarter of the portfolio’s value, including future commitments, according to a transaction summary obtained by Bloomberg. Private-equity funds that invest in oil and gas account for 17 percent and firms that buy distressed securities constitute 14 percent.
The school’s illiquid investments offer “immediate access to a mature and diversified portfolio of funds ready to be harvested, as well as exposure to 2008 and 2009 vintage funds with significant capital to deploy in a very attractive investment environment,” according to the document, which was prepared by Cogent Partners, the Dallas-based firm handling the sale. The stakes also carry $4.92 billion in future commitments to the managers.