Miles Dieffenbach: Inside Carnegie Mellon’s $4BN Endowment & The Math Behind DPI, TVPI, Illiquidity

Venture Capital Investment Strategies - Venture capital firms should consider taking companies public now, as current business models are creating high-margin businesses [1][19] - New allocators or investors need access to top decile managers to consistently achieve returns above the Public Market Equivalent (PME); otherwise, even top quartile performance is insufficient [1] - The venture industry is seeing a shift in partnership dynamics, with increased changes in partnerships over the past two years, driven by factors such as reduced compensation and a desire to avoid current market challenges [10] - The industry should be wary of multi-stage platforms, as the large fund sizes make it difficult to achieve the same returns as in the past [12] - The industry should be aware that thematic funds are approached agnostically, focusing on finding great partners with aligned skill sets rather than adhering to specific mandates [20] Endowment Management - Carnegie Mellon University (CMU) manages $4 billion on behalf of the university, with 85% allocated to equity and 15% to fixed income [6] - CMU targets 50% of its portfolio in privates (venture capital, private equity, real estate, natural resources, private credit) and the other 50% in hedge funds and liquids (public equities and fixed income) [6] - CMU is overweight venture by 5-10 percentage points compared to most endowments of its size and underweight hedge funds and real assets [6] - Endowments are facing headwinds, particularly those that may be subject to taxation, which could impact their draw and investment strategies [11] Venture Capital Fund Performance & Metrics - The median Internal Rate of Return (IRR) for mature venture capital funds is about 8% net, with the top quartile at 15%, and a Multiple on Invested Capital (MOIC) of about 25x [6] - Top quartile Distributed to Paid-In Capital (DPI) from 15-year vintage funds (1998-2015) is 18x [6] - A key question for new allocators is whether they will have access to top decile managers, as only those consistently achieve returns above the PME [6] - The industry should be aware that a 6x gross return is needed to achieve a 4x net return, considering fees of 25% and 30% for early-stage funds and 2% and 20% for growth funds [13]