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Yale University Endowment Fund

Name: Yale University Endowment Fund

Assets Under Management:  $20.8 Billion ( Source: Yale Investments Office)

Yale Pie

Portfolio Allocation Insights:

Most of Yale University’s funds come from donors giving for specific areas within the university. The small amount of funds left over are invested in by the Yale endowment fund to continue to grow the funds that have already been obtained. The university uses a system that most schools and investors would not be able to maintain because of the lack of funds compared to that of Yale.

“Nearly 80 percent of Yale’s out performance relative to the average Cambridge Associates endowment was attributable to the value added by Yale’s active managers, while only 20 percent was the result of Yale’s asset allocation.” (Source)

Management Team:

Team Member Title
David Swenson Chief Investment Officer
Dean Takahashi Senior Director
Alexander C. Banker Director: Risk Management
Alan S. Forman Director: Real Estate Portfolio
Lisa M. Howie Director: Foreign Equity Investments

 

Contact Details:  For complete contact details for the Yale University Endowment Fund investment staff please access your copy of our Endowment Database.

 

Background on the Yale University Endowment Fund:

Yale University uses a very specific model when it comes to investing for their endowment fund, this is known as the Yale Model. This model is seen as very controversial, as well as it is very difficult to replicate without the correct amount of funding, like those funds that are received at Yale. In the last year Yale university has reallocated many funds to further the profit. “[Yale Investments Office] cut the endowment’s target exposure to private equity to 31% of assets for the fiscal year (2013)… Yale Investments Office also reduced its targets for real estate, while increasing allocation targets for hedge funds, foreign equities and natural resources.” (Source)

 

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Top Yale Endowment Fund Headlines:

1) The Yale University endowment is lowering the percentage of assets dedicated to private-equity investments for the first time since 2005. The New Haven, Conn., college’s endowment totaled $20.8 billion as of June 30 and is closely watched for changes in its holdings of stocks, bonds, hedge funds, private equity and other investments. Yale Investments Office, which manages the endowment, said last month that it cut the endowment’s target exposure to private equity to 31% of assets for the fiscal year that began July 1. Yale Investments Office also reduced its targets for real estate, while increasing allocation targets for hedge funds, foreign equities and natural resources. The private-equity target was 35% in fiscal 2012. As of June 30, 2012, private equity represented 35.3% of the university’s $19.3 billion of endowment assets, according to the latest detailed data available. Yale Investments Office declined to comment on the moves through a spokesman. Yale’s private-equity portfolio has generated a 14.4% annualized return in the past decade, ranking it as one of the endowment’s best investments, according to a preliminary report issued in September. (Source)

2)  It is not a secret that Yale University’s Endowment Fund, headed by Chief Investment Officer David F. Swensen, has shown remarkable success under his administration: the fund has grown more than twenty-fold since the 90s. Mr. Swensen is notable for inventing The Yale Model, which is based upon the principles of Modern Portfolio Theory. According to him, Yale’s portfolio was overly conservative and under-diversified upon the beginning of his supervision. The fund was highly exposed to domestic equities and fixed-income securities. Although these measures helped reduce market risk, assets as a whole seemed to not have been performed adequately and efficiently over the long-term. Mr. Swensen decided to change asset allocation towards riskier classes. Even though this decision added risk to the portfolio, the additional returns well compensated the increase in overall market risk. Partially, this can be explained by the addition of uncorrelated assets to the portfolio: its variance of returns was actually reduced by the expansion of classes.  (Source)

3)  The modern style of institutional investing can be traced to Yale University’s David Swensen, who literally wrote the book on the subject. (Full disclosure, I’m a Yale graduate.) Three core ideas inform his thinking.1. Savers are paid to take risk. If you want to generate big returns you have to be willing to endure large losses at any point. 2. Universities and other institutional investors have long time horizons because they expect to exist forever. This makes them different from regular people who save for retirement. 3. Contrary to standard academic theory, which suggests that savers should invest in broad indexes and avoid fees, market imperfections create opportunities for talented money managers. They can improve a portfolio’s performance through a combination of high returns and diversification benefits. (Source)

 

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About Richard C. Wilson