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Confident Yale validates investment strategy with private equity increase……

The $16.3 billion Yale endowment has increased its long-term allocation to private equity from 21 to 26 per cent, and increased the real assets exposure from 29 to 37 per cent.

The exposure to private equity has been slowing creeping up over the years – from about 15 per cent in 2005 – with the actual asset allocation to private equity at June 2008 of 20.2 per cent increasing to 24.3 per cent the next year, and now its strategic benchmark has increased to 26 per cent.

In the past year the exposure to real assets, which comprise real estate, oil and gas and timberland, has also increased by about 3 per cent, to 32 per cent and that will now increase again to 37 per cent.

Domestic and foreign equity and absolute return strategies have been the asset allocation casualties with domestic equity decreasing 2.5 per cent decrease in domestic equities, 5 per cent decrease in foreign equity target allocation to 10 per cent, and a 6 per cent decrease in absolute return to 15 per cent.

Within the absolute return portfolio, about half is dedicated to event-driven strategies, and half to value-driven strategies. These accounts have performance-related incentive fees, hurdle rates and clawback provisions.

Similarly foreign equity is divided into sub-asset classes, with 3 per cent allocated to emerging markets, and 3 per cent to opportunistic investments, where the focus has been China and India.

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The endowment has evolved dramatically in the past 20 years, in 1989 about 70 per cent of the portfolio committed to US stocks, bonds and cash, now those asset classes account for less than 15 per cent of the portfolio.

Yale’s long-term performance continues to be good, despite the past couple of years and over a 10-year period the portfolio has returned an annualised 11.8 per cent net of fees.

In addition to its particular asset allocation policy, Yale believes in active management, and its domestic equity performance is testament to this.

Over the past decade the domestic equity portfolio returned an annualised 7.4 per cent, outperforming the Wilshire 5000 by 8.7 per cent and the Russell median manager return by 7.9 per cent per year. This has been achieved primarily by stock selection.

Its private equity portfolio has earned 25.8 per cent annualised over the past 10 years, and since inception in 1973 returned 30.4 per cent per annum.

Yale endowment asset allocation

Asset class Actual June 2009 Target allocation
Absolute return 24.3% 15.0%
Domestic equity 7.5 7.5
Fixed income 4.0 4.0
Foreign equity 9.8 10.0
Private equity 24.3 26.0
Real assets 32.0 37.0
Cash -1.9 0.5


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