Ivy League Endowments Face Private Equity Slump

Private equity investments are reportedly performing poorly for major university endowments, prompting strategic reevaluations. Princeton University has lowered its expected endowment returns, citing underperforming private capital investments as a primary reason. Yale University has reduced its portfolio of leveraged buyouts for the first time in a decade, while Harvard University is now strategically cashing out of some private-market holdings early.

For years, private equity was a cornerstone for university endowments, promising lucrative returns. However, in the three years ended June 30, these investments yielded an annualized 7.4%, significantly trailing the S&P 500's 19.7% annual gain over the same period. This underperformance, coupled with an environment of rising interest rates and a market saturated with unsold portfolio companies, has led institutions to reconsider their long-held strategies.

Princeton's endowment return projection was cut from 10.2% to 8%, with President Christopher Eisgruber suggesting the "golden age" of private equity may have concluded. This shift necessitates spending constraints, potentially altering the growth trajectory universities have experienced for decades. Even a standard portfolio of stocks and bonds has outperformed many Ivy League endowments recently.

Universities are increasingly turning to the secondary market to divest private-equity stakes before their maturity. Yale expects to collect approximately $1 billion from such sales, reducing its leveraged buyout portfolio. Harvard also offloaded about $1 billion in private-equity holdings last year, viewing the secondary market as a strategic tool to manage its holdings effectively. This approach contrasts with the traditional philosophy of allowing private-equity investments to grow unhindered.