Yale to continue alternatives investment strategy

Richard Levin, president of Yale University, said the investment model designed by David Swensen had performed ‘spectacularly well’ for the endowment despite a 30% decline in value in the last fiscal year, according to a Bloomberg report.

Yale University will not abandon the investment model devised by chief investment officer David Swensen despite it resulting in a 30 percent decline in the endowment’s value, president Richard Levin told Bloomberg.

Levin said the model, which saw the endowment dramatically increase its allocation to alternatives over the past decade, had performed “spectacularly well”, returning $11 billion more than a hypothetical portfolio of stocks and bonds.

According to the report, Yale’s endowment was estimated to be worth $16 billion on 30 June this year – back down to 2005 levels.

For the fiscal year 2008, the endowment was valued at $22.9 billion, according to performance documents on Yale’s website. Its allocation to real assets during the period was 29.3 percent, an increase of 64 percent over 2004. The same trend was seen for private equity, with 20.2 percent of the endowment being allocated to the asset class in fiscal year 2008, a 71 percent increase over 2004 levels.

Conversely, Yale’s allocation to fixed income and equities has declined steadily over the same period, with fixed income and domestic equities making up just 4 percent and 10 percent of the endowment’s fund in the 2008 fiscal year.

With returns averaging 23 percent a year between 2004 and 2007, Swensen’s model was emulated by many endowments and public pensions in the US. The Bloomberg report said Yale’s endowment grew from just $1 billion in 1985, when Swensen began managing the fund. 
“I would not have changed it the slightest bit,” Levin said of the investing strategy. “It’s not a close call.”

Swensen hit the headlines earlier this year when he labeled funds of funds, specially hedge funds of funds, a “cancer on the institutional investor world”.

“Most endowments use fund[s] of funds and consultants, rather than making their own well-informed decisions,” Swensen told The Wall Street Journal at the time. “If you’re going to invest in alternatives, you should be all in, and do it the way Yale does it – with 20 to 25 investment professionals who devote their careers to looking for investment opportunities.”