It’s a sign of the times when important limited partners dial back their allocations to the private markets.
That’s exactly what has taken place over the last fiscal year at the University of Michigan, whose endowment has its hands in many of Silicon Valley’s most storied venture capital funds. The endowment cut back its new investments in venture capital and private equity by more than 40% in the 12 months ending in June 2023, according to public documents reviewed by Fortune as well as records obtained by a Freedom of Information Act Request.
The endowment, which oversaw $17.9 billion in assets as of June 2023, reported that it had committed more than $1 billion of capital to private funds during its 2022 fiscal year. By June of this year, that number dropped almost in half, with the endowment committing only $580 million in new capital to private equity and venture capital funds. In addition, the university said in its most recent report that it had severed relationships with nine private fund managers in its 2023 fiscal year, versus only four the year prior. A spokesperson for the University of Michigan didn't respond to a request for comment before press time.
The University of Michigan is an important limited partner in the venture capital ecosystem, in particular, as it has its hands in some of Silicon Valley’s most storied and well-known names, including Sequoia Capital, Andreessen Horowitz, Accel, General Catalyst, and Y Combinator, according to documents Fortune requested under freedom of information laws.
To be sure, the University of Michigan is still very saturated in venture capital and private equity and maintains it is still committed to the asset class in its annual report. As of June 2023, approximately 40.9% of the endowment’s portfolio was invested in venture capital and PE funds.
Even so, the endowment’s portfolio adjustments underscore how increasingly competitive the fundraising market has become. As I reported this summer, this is the worst time for first-time fund managers to raise a fund in a decade—particularly as rising interest rates have made other asset classes more appealing to limited partners and as the path to exit has thinned, meaning there's less capital going back to LPs to reinvest in new funds. However not all limited partners are dialing things back. CalPERS, one of the venture capital market’s most important investors, has doubled down as other peers get cold feet or restrategize.
The University of Michigan reported a one-year annualized investment return of 0.7% for its PE and VC investments, compared to an industry benchmark of -3.4%.
“While performance of venture capital can be potentially volatile in the short term, it has been one of the best performing areas of investment over the long term,” the endowment’s latest annual report said, and it listed a 20-year annualized rate of return of 16.7% for that asset class.
See you tomorrow,
Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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