Yale committed to PE and real estate, despite losses

The university’s chief investment officer David Swensen is reportedly still enthusiastic about illiquid assets, which he says could benefit from an even greater investment allocation owing to legacy commitments.

Yale University chief investment officer David Swensen said he remains enthusiastic about illiquid assets such as private equity and real estate, despite huge losses as a result of the global economic crisis, Reuters reports.
Swensen, who has managed Yale’s endowment for 25 years, said the university’s $17 billion portfolio could grow its investments in real estate and private equity, as well as other illiquid assets including ventures, timber and energy, due to legacy commitments made when the endowment was bigger. The size of the endowment was reportedly $20 billion when those commitments to illiquid assets were made.
Yale’s endowment lost a reported 25 percent for the year ending 20 June, 2009.
The fund increased its target allocation to private equity to 26 percent from 21 percent in 2008, and its target to real assets to 37 percent from 29 percent in 2008. Real assets includes real estate, oil and gas and timber investments.
The endowment’s actual allocation to private equity is 24.3 percent, and 32 percent to real assets, PERE reported last month.

Yale sustained heavy losses in the two asset classes last year. Private equity lost 24.3 percent in 2009, while real assets dropped 33.9 percent to become the worst performing asset class of the year.

“The heavy allocation to non-traditional asset classes stems from their return potential and diversifying power,” the endowment said in its 2009 annual summary. “The real assets portfolio plays a meaningful role in the endowment as a powerful diversifying tool and a generator of strong returns.”

Yale said over the past 10 years, real assets had delivered 13.5 percent annualised returns.
The university’s endowment lost $5.6 billion in 2009, a loss driven in part by heavy write downs in its private equity and real asset classes.
In July 2009, Yale announced it would not abandon the investment model devised by Swensen despite it resulting in a 30 percent decline in the endowment’s value, according to a Bloomberg report at the time.