How US Public Universities Are Boosting Private Equity Investments in a Shifting Market: Key Insights

Public universities in the U.S. are increasingly looking at private equity as a favorable investment option, despite the asset class’s mixed performance over recent years. With stock market trends appearing lackluster, many see this as a unique opportunity.

The Financial Times reports that several institutions plan to significantly raise their private equity investments. For instance, Clemson University Foundation intends to increase its allocation from 18% to 24% within four years. John Alexander, their Chief Investment Officer, believes private equity will continue to offer a valuable risk premium over public markets.

Similarly, the University of Utah Growth Capital Partners Foundation recently decided to triple its private equity share from 10% to 30%. CEO David Anderson highlighted that private equity presents opportunities for higher long-term returns, stating, “The PE market is far less efficient than the public market, but there are more opportunities to get excess returns.”

Traditionally, public endowments have been cautious about jumping into private equity, often hindered by limited access to top-tier managers and conservative governance structures. However, as some larger institutions reduce their commitments, public universities are seizing the chance to fill the gap.

Not everyone is on board with the shift. For instance, Virginia Commonwealth University’s $2.3 billion endowment has opted to maintain its 18% allocation. CIO Bruce MacDonald noted, “We are not seeing this as a great opportunity to add to privates.” This reflects a growing divide in opinion among institutions.

Despite differing perspectives, the movement indicates a growing trust in private equity as a long-term investment, especially while public markets show lackluster growth. Michael Stohler, CIO of the University of Wisconsin-Madison’s $4.3 billion endowment, shared insights on this trend. He said, “As long as we are compounding above our cost of capital, we have a reasonable tolerance for long hold periods.”

In recent years, private equity has gained traction not just among elite institutions but increasingly among public endowments. According to a survey from PitchBook, 86% of private equity firms plan to increase their capital commitments to the sector, aligning with the growing interest among public universities.

With the investment landscape continuously evolving, it will be interesting to see how these changes impact endowments’ performance in the future. For more insights on this topic, you can check this Financial Times article.

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