The University of Virginia’s investments, which include the multibillion dollar endowment, reported positive returns after months of significant losses. In the first quarter of FY 2008, the UVA endowment, then valued at $4.6 billion, lost $600 million. By mid-October 2008, it was valued at $2.9 billion.
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Chris Brightman was named CEO of UVIMCO in 2004. Then, investments were just shy of $2.5 billion. Now, he is overseeing the University’s endowment that is currently just above $4 billion. |
Since then, investment activities produced positive returns month after month. According to University of Virginia Investment Management Company’s (UVIMCO) latest investment report, the endowment grew $154.3 million in May. The returns for the previous two months were also positive.
The UVA endowment is currently valued at $4 billion.
Although the University has been investing “a portion” of its endowment in private funds for more than 25 years, UVA will increasingly invest more in private equity, an asset class of equity securities in operating companies that are not traded on public stock markets. “Consistent with our presently larger-than-normal amount of commitments to make future investments in private funds, we now have a more liquid portfolio,” writes UVIMCO CEO Chris Brightman in an e-mail. “Over the coming years, as our allocations to private equity, real estate and resource funds increase, our allocation to cash, bonds and hedge funds will decline.”
Tom Arnold, associate professor of Finance at the Robins School of Business, University of Richmond, says universities invest in private equity, because “they are actually dealing with such large sums of money that they can’t drop it into a stock market or into a bond market without becoming a large investor in one particular company.”
According to the quarter-end report that dates back to March, UVIMCO has $1 billion invested in private equity, real estate and resource funds. Between 2012 and 2015, the investments in that sector could reach $2 billion.
Real estate and resource funds are also vital parts of the portfolio. Brightman says that both provide profits “from the active management of the underlying assets.” About 6 percent of the endowment pool is invested in natural resource funds that develop “oil, natural gas, mine industrial metals, manage forest land, and build power generation and transmission assets.”
Yet, there are risks involved. U-R’s Arnold says that although there are risks in all investments, this strategy tends to be “riskier,” but will likely provide a bigger return. “It’s risky in the sense that some portion will come back zero and other portions will come back 50 or 60 percent,” he says. Private equity has a return that is traditionally higher than any other investment vehicles, yet, Arnold says such investments lack liquidity. “If you need some money fast, it’s very difficult to go and sell off the private equity.”
Harvard University, pressured by significant budget cuts, put $1.5 billion in private equity for sale—out of its $28.8 billion endowment—but retrieved it due to a steep drop in price.
Risks in the real estate arena are even more pronounced. Although the real estate strategy is ‘buy low, sell high,’ Arnold says the market’s recovery time is the main value on which to base investments.
Ultimately, the purpose of UVA’s endowment investments is to “provide sustainable long-term financial returns,” says Brightman.
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