The Yale Investments office

The Yale Investments Office had ridden private equity from its infancy until itbecame an investing juggernaut with more and more money being poured into its funds.The Office investment staff was becoming concerned about changes in the privateequity industry. Not only was the money chasing it for higher returns. More investmentmanagers and financial institutions were creating their own private equity funds for thehigher management fees and greater management compensation. First, many privateequity funds were incredibly large billions of dollars. However, the Office can continueto evaluate the performance of their private equity managers and continue to find moredisciplined managers. There are only so many opportunities to invest in at a given time.An example of that is Fidelity’s Magellan Fund, which had to stop taking moneybecause of limited opportunities. It hit its maximum net assets under management at$119 billion. Swensen is concerned that they may pursue having large amount ofassets under management that produce lower returns rather than pursue the high-returnstrategies that have served them well.

Second, there is more competition to contribute money to private equity funds.Every major institutional investor has looked at the U.S. private equity market to gainhigher returns. This includes overseas institutional investors, state pension funds (whoare chasing returns to make up for underfunding) and some of the world’s newly mintedmulti-millionaires and billionaires, many of whom are in China. This could cause pricecompetition for asset acquisitions and it became more difficult for the Office to getsufficiently large allocations to some funds because of the demand for them. It solved itin some case by seeding the start up of some funds, but then it accepted manager riskfor having a large proportion of funds under management by one fund