Investure, Llc, and Smith College

Abstract

Alice Handy, an investment professional with three decades of experience as head of the University of Virginia Investment Management Company, has opened a new asset management firm targeted at midsized endowments and nonprofit institutions in January 2004. Her business, Investure, LLC, offered outsourced investment services to institutions with $150 million to $1 billion in assets and access to top-performing managers at lower cost than a fund of funds (FoF). Smith College, a prestigious liberal arts college with a nearly $1 billion endowment, is interested in increasing its current allocation to private equity. Handy and her partner are preparing to meet with Smiths trustees in an attempt to win Smith College as Investures first client. The case presents three different approaches to private equity investing: direct investment through a traditional limited partnership, investment through a fund of funds, or investment through Investures outsourced model. The class discussion presents an opportunity to evaluate the advantages and shortcomings of each approach, introduce key terminology, and to discuss the current trends in the private equity market. Students are given the cash inflows and outflows for a representative investment in a venture capital fund of the type Handy hopes to invest in on behalf of Smith College. The main analytical task requires students to evaluate the expected gross and net returns generated by the representative investment under each of the different approaches and fee structures. This case was written for an opening or early class in courses focusing on entrepreneurial finance, venture capital, or private equity. It can also be used in specialized courses for fund trustees interested in alternative assets. Objectives To provide an overview of private equity investing and the advantages and disadvantages of private-equity investing. To introduce students to the structure of private equity partnerships and key terms (e.g., general partner, limited partner, committed capital, carried interest, fees.) To explore the different approaches to investing in private equity and evaluate the benefits and shortcomings of each. To consider the portfolio implications of private equity investments. To examine issues of fit for an endowment.