As the Financial Times recently noted, Ivy League endowments are seeing poor performance, particularly in their private asset allocations. But let’s be clear—the issue isn’t just where these institutions are allocating their capital, but who they’re entrusting it to.
Now, oooh wee, I’m about to lean into my economics degree to school you folks on why this was never a sustainable model. Did they think they were too big to fail? I mean, they haven’t completely failed, but they certainly aren’t doling out the giant returns they’d promised. Six of the eight Ivy League universities reported returns in the 12 months ending June that were below the higher education average of 10.3%, according to Cambridge Associates. Yale and Princeton fared the worst, yielding just 5.7% and 3.9%, respectively.
And let’s not forget, 2023 was even rougher. Not a single Ivy League school managed to hit the 6.8% industry average. Yale gained just 1.8%, and Princeton straight-up lost 1.7%. Broooo… these stats are rough.
Institutional investors, including many endowments, have a long-standing bias for large, brand-name funds run by established venture managers. It’s a formula they’ve convinced themselves equals success. But data from Preqin, Carta (one of our LPs), the StepStone Group, and Cambridge Associates tells a different story: emerging manager funds consistently outperform their mega-fund counterparts—and have been doing so for over two decades.
Why the Gap Exists
The real magic in venture lies at the early stages, where emerging managers thrive. These funds are more agile, take bigger risks, and have the ability to identify groundbreaking opportunities before they become obvious to everyone else. Unlike mega funds, which often lean on brand power and recycled strategies, emerging managers are boots-on-the-ground operators, hustling for the deals that will drive outsized returns.
Their focus on smaller check sizes, hands-on portfolio support, and niche expertise creates better alignment with LPs and gives them access to the high-growth startups that brand-name funds might overlook.
Time to Read the Room
I’ve read the room multiple times, but I’m going to say it again for the folks in the back: 98% of capital allocators are white males. Maybe shift a little more capital toward the 2 percenters like me. More women, more everyone else… and you’ll see some better returns.
Let me say this louder for the people clutching their spreadsheets: More diversity among capital allocators leads to more diverse investment decisions, which means broader opportunities, smarter risks, and ultimately, better returns.
The Opportunity for Arbitrage
Emerging managers offer LPs a chance to spot real value. While the mega funds chase inflated valuations and follow-on rounds, emerging managers are busy identifying the next generation of unicorns before they’ve even grown horns.
High-performing endowments, like Baylor University, have already figured this out. By actively targeting emerging managers, they’re not only avoiding the pitfalls of the traditional “brand-name” approach but also beating Ivy League returns. Their strategy is grounded in aligning with funds that understand where value is created—not where it’s easiest to deploy capital.
This is exactly what we’re doing at Lightship Capital’s Anchor Fund. Through our Anchor Fund, we actively invest in emerging fund managers who bring diverse perspectives and unparalleled insight into the early-stage venture ecosystem. By backing these managers, we’re not only driving superior returns but also fostering innovation and equity in a space that desperately needs it.
Learn more about our approach here: Lightship Capital Anchor Fund.
Will LPs Finally Change?
With lower returns becoming the norm, perhaps more LPs will finally wake up to the reality that bigger isn’t always better. But I’m not holding my breath. Institutional investors remain captivated by the comfort of reputation, even as data continues to scream for diversification into emerging managers.
This isn’t just about returns, either. Investing in diverse, emerging managers offers the additional benefit of fostering innovation and inclusivity in an industry that has historically been homogenous. New talent brings new perspectives, and those perspectives are often the secret sauce behind disruptive startups.
What’s Next?
For LPs ready to break the cycle, the time to act is now. The opportunity to do better is sitting right in front of them. Emerging manager funds not only provide the potential for outsized returns but also represent the future of venture capital—a future that is more diverse, inclusive, and driven by talent rather than legacy.
At Lightship Capital, we’re building that future with the Anchor Fund, aligning ourselves with the managers who are rewriting the playbook. It’s time for LPs to stop chasing what’s easy and start chasing what works.
Because let’s face it—the old formula isn’t giving what it was supposed to give.
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