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Call it a case of senioritis for Andrew Golden. The Princeton University endowment chief is retiring from his post after three decades. As he departs, the school’s allocation to private equity including venture capital has crept up to 40 per cent.
That is above Princeton’s 30 per cent target. The jump comes just as the masters of the universe are labouring to return cash to limited partners amid an IPO and M&A slump. Golden lamented the situation in an interview with the FT calling the current moment “the worst environment ever” for backers of private markets.
These difficulties coincide with public markets’ surge since the start of last year. In the fiscal year ending in June 2023, Princeton’s endowment returned a negative 1.7 per cent, leaving its value at $34bn. Elite private colleges have for the last 25 years followed the “Yale model” by ploughing big dollars into illiquid alternative investments, to great success (Golden had come from Yale).
But perversely, public universities that rely on public market investing have triumphed of late. University California, San Diego, for example returned a leading 11 per cent in fiscal 2023 by virtue of its nearly one-third allocation to the S&P 500.
The sclerosis in private equity will mar the end of Golden’s tenure. But his long-standing commitments to alternative investing has made Princeton fabulously rich. His successor may have tough choices to make as private markets get more crowded and managers increasingly seek to maximise fees rather than performance.
When measured per full-time student, Princeton’s $4mn makes it the wealthiest college in America. It targets spending 4 to 6 per cent of its endowment each year on operating expenses. When the endowment underperforms that, its balance falls.
In the late 1990s, Princeton allocated just 25 per cent collectively to private equity and real estate. Its target now is at 48 per cent. Princeton’s endowment, even including the 2023 hiccup, has averaged an annual return of 10.8 per cent over the past decade, well ahead of its benchmarks. Since endowments have long-term horizons, the compounding differences of a percentage point or two each year over a generation have massive consequences.
Private assets conventionally had been only a game for the likes of deep-pocketed institutions such as Princeton which had access to the best managers. But those managers are increasingly looking to new places for growth including retail and individual pensioners.
Universities also are facing pressure to include social imperatives in their decision making (Princeton, for example, no longer invests in publicly traded oil and gas companies). All together, sustained outperformance looks like a tough test to pass.
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