Yale Keeps Yale Endowment Model
Posted on 03/03/2015
Yale’s massive US$ 23.9 billion endowment gained US$ 4 billion in investment returns during its fiscal year 2014 – essentially a 20.2% return. The big threat facing U.S. endowments is sustainable funding and Yale’s endowment for 2014 subsidized nearly 33% of the university’s income. The world of asset allocation models and theories are rife with contentious debates. Yale’s endowment model has accumulated both admirers and haters. Pioneered and led by Yale’s Chief Investment Officer David Swensen, the endowment is heavily allocated to nontraditional assets. These unlisted assets include venture capital, leveraged buyouts, natural resources and institutional real estate.
Asset Allocation – June 30, 2014
| Asset Class | Weight |
|---|---|
| Absolute Return | 17.4% |
| Domestic Equity | 3.9% |
| Fixed Income | 4.9% |
| Foreign Equity | 11.5% |
| Natural Resources | 8.2% |
| Private Equity | 33.0% |
| Real Estate | 17.6% |
| Cash | 3.5% |
How Long Will It Last?
Yale’s endowment model has garnered both controversy and followers. Pioneered and led by David Swensen, the endowment has heavy allocation to nontraditional assets, including venture capital, real estate and natural resources, to its increase of foreign equity targets. According to the 2014 annual report, over the past 20 years, the endowment’s private equity program earned 36.1% per year. Only 11% of assets are allocated to fixed income and U.S. stocks.
A number of other institutional investors such as pensions, endowments and sovereign wealth funds have taken pages from the Yale endowment model. Many of the large Canadian pensions like CPPIB and OMERS have a significant percentage of assets allocated to private markets – still far from the extent of the Yale endowment model.
Keywords: Yale Investment Office.
