Reasons why universities invest in private assets

Private debt, private equity, and real estate are often seen by investors as niche, inaccessible, and overly complex. However, over the past couple of decades, private assets have seen strong growth, with private debt alone going from just £41 billion in assets under management in 2000 to £1.3 trillion by 2022. In the process, they have not only become bigger but also often easier to access than before. Unlike publicly traded equities and bonds, private assets are less liquid and therefore geared for the longer term; a longer horizon that makesthem more resilient over time.

Private assets also provide sophisticated investors with opportunities to take advantage of inefficient pricing, which is often associated with smaller and less liquid assets. Through private assets, investors can even tap into some of the value creation that is increasingly taking place in companies before they opt to go public via initial public offerings. Private assets thrive under an endowment approach, best suited for long-term investors, such as some of the biggest and most prestigious universities in the US. Over the past two decades, US university endowments have reduced their exposure to public assets and focused increasingly on private assets for the longer term.

The Yale endowment fund, the third largest in the US, said in 2020 that it aimed to have around 3/4 of its fund allocated to alternative assets. So, what's the catch? Private assets demand time to mature. They perform best for investors with a long-term horizon. It's also an asset class that benefits from experience and expertise dispersion. The range of possible returns from an investment means that choosing the right investments, as well as the right advice and guidance, is essential.

But for disciplined investors who can think beyond the noise of the markets, private assets provide the chance to build a fortress geared towards the long term and to provide enduring, sustainable gains across generations.