Global biomedical charitable research foundation Wellcome Trust has increased its commitment to venture capital to 19 percent of its 13.6 billion pounds ($21.02 billion) investment portfolio in the last 12 months. Venture and growth funds are included in this figure as well as direct venture investments.
Wellcome’s private equity exposure, valued at $4 billion, has more than doubled over the past five years and now makes up 19% of the group’s total portfolio. This increase in exposure has largely been driven by strong performance in the underlying assets. The trust continues to make new investments (directly, through bespoke partnerships and through funds) although these have been partly offset over the period by four sales, totalling £500 million, of interests in mature buyout funds.
Wellcome has a bias towards early stage venture and growth capital investments, which account for 48% of private equity investments and 66% of its total outstanding commitments of 1.5 billion pounds.
The venture portfolio is global although the majority of investments are West Coast of the US. The Trust does not use fund-of-funds and has experienced venture partners concentrated in the US. Last year, although Wellcome is invested in less than 3% of US venture funds, the group participated in 84% of the 49 venture-backed IPOs which took place. These enabled the business to earn a return of 17% in the year, bringing Wellcome’s five year return to 54%. Over the long term, since 1994, the business has earned an annual IRR of 63% on its venture investments. Wellcome has strong exposure to consumer internet companies: the listing of LinkedIn was the most significant event in its portfolio in 2010/11, and the trust expects to benefit from the listing of Facebook, Groupon, Twitter and Zynga in the future.
Wellcome’s global buyout commitments account for more than 30% of the private equity portfolio. Large MBOs have returned 12% over the past year and 66% over the past five years, outperforming against public markets by almost 9% per annum.
Wellcome’s investment team is small, with relationships that go back to 1993. “We have a small team with vast experience. There are 25 investment professionals running the whole portfolio so we all know what everyone else is working on–that is the advantage,” says Peter Pereira Gray, managing director, investment division.
He explains that Wellcome Trust does not use a traditional strategic asset allocation model as many institutional investors do. The trust does not have specific targets for assets, he says. Instead, the portfolio is regarded as a single entity rather than lots of individual portfolios, he explains. “If we don’t like the prospect of investing in something we might stop investing in that asset class for a limited time rather than reducing our exposure to it.”
He explains the increased exposure to venture: “This is not as a result of targets or a desire to increase a specific percentage. We have wanted to reduce our equities exposure and wanted to increase venture and growth for some time. Not because we were ever over or under allocated but because that is where we see the greater opportunities.”