Yale University Investment Fund
Finance 452: Investment Management
Case: Yale University Investments Office
Megan Hurley, Robert Liu, Aaron Nachman, David Naert, Erik Westerlund
Case Intro:
In August 2006 with David Swensen as head of the Yale Investments Office, the Yale endowment has grown to 18 billion dollars. This was achieved with the help of focusing on less efficient markets such as private equity, real assets, and absolute return investments. However, with such a large endowment, the office is continually faced with challenges, which will be discussed in this case. Yale was established in 1701 and by 1930, their endowment was represented by 42% in equities. The portfolio was comprised of individual bonds and high-yield stocks. By 1960, two changes were made at Yale. The first was to increase equity investments. The second was to outsource the portfolio management to EM&R (Endowment Management and Research Corporation). However, by 1979 the Investment Office started using many external advisors to handle its ever-expanding and complicated portfolio. When David Swensen took over as head of the office in 1985, his team was responsible for all aspects of the portfolio, most importantly how much of the endowment could be spent year to year and exactly how the money should be invested. The investment philosophy at Yale demonstrates its difference from other universities. There is a strong push for equities, which Swensen states makes sense due to more than 95% of the assets expecting to bring equity returns. Another part of the philosophy is to have a diverse portfolio, which is standard for any investments office hoping to be successful in the ever-changing market. Another aspect specific to Yale is its investment in less efficient markets, not emphasizing the majority of its endowment into public stocks and bonds. Finally, Yale seeks to better align its managers’ interests with
Case: Yale University Investments Office
Megan Hurley, Robert Liu, Aaron Nachman, David Naert, Erik Westerlund
Case Intro:
In August 2006 with David Swensen as head of the Yale Investments Office, the Yale endowment has grown to 18 billion dollars. This was achieved with the help of focusing on less efficient markets such as private equity, real assets, and absolute return investments. However, with such a large endowment, the office is continually faced with challenges, which will be discussed in this case. Yale was established in 1701 and by 1930, their endowment was represented by 42% in equities. The portfolio was comprised of individual bonds and high-yield stocks. By 1960, two changes were made at Yale. The first was to increase equity investments. The second was to outsource the portfolio management to EM&R (Endowment Management and Research Corporation). However, by 1979 the Investment Office started using many external advisors to handle its ever-expanding and complicated portfolio. When David Swensen took over as head of the office in 1985, his team was responsible for all aspects of the portfolio, most importantly how much of the endowment could be spent year to year and exactly how the money should be invested. The investment philosophy at Yale demonstrates its difference from other universities. There is a strong push for equities, which Swensen states makes sense due to more than 95% of the assets expecting to bring equity returns. Another part of the philosophy is to have a diverse portfolio, which is standard for any investments office hoping to be successful in the ever-changing market. Another aspect specific to Yale is its investment in less efficient markets, not emphasizing the majority of its endowment into public stocks and bonds. Finally, Yale seeks to better align its managers’ interests with
Cited: Conerly, B. Commercial Real Estate Forecast 2014-2015. Forbes.com. March 27, 2014. http://www.forbes.com/sites/billconerly/2014/03/27/commercial-real-estate-forecast-2014-2015/ Delevingne, L. Private Equity Preps New Latin America Push. CNBC.com. September 8, 2014. http://www.cnbc.com/id/101975104 Domm, P. Fed Could Toughen Policy Stance as ECB Takes Easy Money Baton. CNBC.com Septmber 4, 2014. http://www.cnbc.com/id/101971619 Lim, D. Yale Asks Managers to Weigh Climate Change Risks. WSJ.com. September 4, 2014. http://blogs.wsj.com/privateequity/2014/09/04/yale-asks-managers-to-weigh-climate-change-risks/