Princeton University to Cut 50% of Private Equity Managers

The $14.4 billion endowment of Princeton University is planning to terminate 50% of its private equity managers, reducing its investments in leveraged buyouts.

(October 25, 2010) — Princeton University, the third-richest US school, plans to drop half of its $14.4 billion endowment’s private equity managers as it curbs investments in leveraged buyouts, Bloomberg is reporting.

“Our mantra is fewer, better, stronger relationships,” Chief Investment Officer Andrew Golden said in an interview with Bloomberg. “It applies across the board but most significantly to buyouts,” the largest piece of the university’s private equity holdings, said Golden, who has followed the approach of David Swensen, chief investment officer of Yale University, toward a strategy of helping endowments beat market indexes by relying on assets such as commodities, real estate and private equity.

Following the financial crisis of 2008, private equity stakes consisted of more than 35% of the university’s endowment, surpassing the target of 23%. In the past year, private equity generated a 19% return for the university, following behind the 43% gain by emerging markets stocks and the 23% increase by US equities. In the year ended June 30, Princeton’s investments gained 15% outpacing returns by both Harvard University and Yale, whose funds gained 11% and 8.9% respectively.

Separately, according to new research by State Street, private equity funds have posted a return of just 0.65% in the three months to the end of June this year. The research also showed private equity recorded a 19.2% return over the year to the end of June and mezzanine and distressed debt funds combined recorded a 27.9% return over the same period. While buyout funds and venture capital recorded 11.4% and 8.7%, respectively, distressed debt and mezzanine funds posted an 11.2% return since inception.

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