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2017 Yale Endowment Report

Posted: Mon Apr 16, 2018 7:17 am
by matjen
Below is a link to the 2017 Yale Endowment Report. Things that caught my eye were the vanishingly small allocation to domestic (US) equities and their explanation of absolute return.

https://static1.squarespace.com/static/ ... ent_17.pdf

Here is its asset allocation:

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This paragraph echoes what I think Larry Swedroe is going for with his pivot to increased alternatives. Obviously, Yale has access to more sophisticated and cheaper options (and an ongoing timeframe) but the strategy is similar it seems to me.

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and

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Re: 2017 Yale Endowment Report

Posted: Mon Apr 16, 2018 7:26 am
by lhl12
Along similar lines, this link has an interesting interview of David Swensen (manager of the Yale Endowment) by Bob Rubin (former US Treasury Secretary):

https://www.cfr.org/event/conversation-david-swensen

Re: 2017 Yale Endowment Report

Posted: Mon Apr 16, 2018 7:35 am
by afan
It is interesting, but several observations.

Yale clearly includes equity ownership in it's absolute return asset class. So the actual ownership of stocks is higher than one would think just by looking at the table.

Some of the strategies listed under absolute return might include other types of securities but would be equivalent to owning stock. Some of the strategies would involve owning parts of privately held businesses.

Yale is taking full advantage of it's infinite investment horizon and ability to survive volatility by going heavily into illiquid investments. It is also taking advantage of it's size to get good managers for these private and illiquid investments. Very few individuals can survive a huge loss in income by simply laying off a few of their thousands of employees. Very few individuals have hundreds of millions to place with individual private equity or absolute return investments.

Yale has done well with this approach. So had Harvard for a long time. During the crash, not so much.

Bizzare that Yale uses short term treasury securities as the benchmark for an absolute return portfolio that has much higher expected standard deviation. I wish they would have explained that. Lower correlation with stocks and bonds is not by itself good enough given the huge difference in risk. I wonder whether they reported short term expected volatility but chose the benchmark based on exposure to severe negative events or long term volatility?

Re: 2017 Yale Endowment Report

Posted: Mon Apr 16, 2018 7:37 am
by wrongfunds
what is "Absolute Return"? how can it be greater than all other asset allocation class returns?

Re: 2017 Yale Endowment Report

Posted: Mon Apr 16, 2018 7:47 am
by goblue100
In poker there is a term called fancy play syndrome. That is when a player falls in love with making big and strangely timed bluffs when a simpler, more straight forward strategy would do. Sounds to me like Yale is getting a case of fancy play syndrome.

I live in the Dallas area, we have been bailing out the police and firefighters pension because the guy running it thought he was smarter than everyone else, and all of his alternative land investments tanked. Hopefully Yale is not falling into the same trap.

Re: 2017 Yale Endowment Report

Posted: Mon Apr 16, 2018 7:58 am
by grok87
There is a separate thread on this.

The 10 year average return (cagr) for the Yale endowment was 6.6%. This is the same as the vanguard balanced index for this period.

Pretty funny...

Re: 2017 Yale Endowment Report

Posted: Mon Apr 16, 2018 8:00 am
by Valuethinker
wrongfunds wrote:
Mon Apr 16, 2018 7:37 am
what is "Absolute Return"? how can it be greater than all other asset allocation class returns?
Hedge Funds are often defined as "Absolute Return" if they are benchmarked against a target other than equity market returns - or rather if they are benchmarked against the return of e.g. cash or short term fixed income.

What you've got in there is people like Kynikos (Jim Charnos) who are pure shorts - they only go long on stocks for tactical reasons. Or market neutral hedge funds, that seek to profit from market movements of whichever direction. Or, for example, Risk Arbitrage hedge funds that buy the stocks of targets of corporate activity, and typically use derivatives to hedge out movements in the stock market as a whole (if you give up the upside, you can typically give up the downside at a total cost of zero - the return is then just the excess return arising from your strategy).

I was taken aback at the size of the bet in higher risk Venture Capital funds. The long run returns from VC are very poor *except* for a handful of partnerships which are now invitation only to LPs (Swensen walks through that in one of his books).

My guess is the valuation of the venture funds they have has soared (due to the "Unicorns" - private financings at greater than $1bn valuation) rather than that they put a lot of new money into this area.

Re: 2017 Yale Endowment Report

Posted: Mon Apr 16, 2018 8:02 am
by Valuethinker
goblue100 wrote:
Mon Apr 16, 2018 7:47 am
In poker there is a term called fancy play syndrome. That is when a player falls in love with making big and strangely timed bluffs when a simpler, more straight forward strategy would do. Sounds to me like Yale is getting a case of fancy play syndrome.

I live in the Dallas area, we have been bailing out the police and firefighters pension because the guy running it thought he was smarter than everyone else, and all of his alternative land investments tanked. Hopefully Yale is not falling into the same trap.
Ahh but with Yale, there really is a nearly 3 decade long track record of doing this better than other people.

University Endowments are the highest performing investors in Private Equity, and Yale is the highest performing university endowment (large endowment).

The may, of course, have gotten too big to deploy the special sauce. And Swensen had a leave of absence due to cancer - not sure where he is on this.

But Yale is not your ordinary university endowment. Or it was not, in any case.

Re: 2017 Yale Endowment Report

Posted: Mon Apr 16, 2018 8:09 am
by Valuethinker
The 17% in Venture Capital funds surprised me (repeating myself but in a separate post).

VC funds generally have a very poor track record except for the top 10 or so funds. Swensen goes through that.

Do they have so much access to those top funds (the implication was they have some, the funds are invitation only for LPs for a new fund raise ie investors in a newly raised fund)?

OR is it simply the funds they have have been written up given the sky high valuations of the tech sector? (the so-called Unicorns valued at over $1bn at last funding round)?

Re: 2017 Yale Endowment Report

Posted: Mon Apr 16, 2018 8:25 am
by goblue100
Valuethinker wrote:
Mon Apr 16, 2018 8:02 am
Ahh but with Yale, there really is a nearly 3 decade long track record of doing this better than other people.

University Endowments are the highest performing investors in Private Equity, and Yale is the highest performing university endowment (large endowment).

The may, of course, have gotten too big to deploy the special sauce. And Swensen had a leave of absence due to cancer - not sure where he is on this.
As mentioned in this thread, 10 year return is commensurate with a simple Vanguard balanced fund. I'm sure they would argue that they have better risk adjusted return.

Re: 2017 Yale Endowment Report

Posted: Mon Apr 16, 2018 8:31 am
by dziuniek
It certainly makes me look smart every time I look at endowment returns.

I've beat Yale/Swenson more than once! :twisted:

Re: 2017 Yale Endowment Report

Posted: Mon Apr 16, 2018 8:43 am
by lazyday
lhl12 wrote:
Mon Apr 16, 2018 7:26 am
Along similar lines, this link has an interesting interview of David Swensen (manager of the Yale Endowment) by Bob Rubin (former US Treasury Secretary):

https://www.cfr.org/event/conversation-david-swensen
Here's the discussion on it: viewtopic.php?t=232479

Re: 2017 Yale Endowment Report

Posted: Mon Apr 16, 2018 9:33 am
by scooters
Valuethinker wrote:
Mon Apr 16, 2018 8:09 am
Do they have so much access to those top funds (the implication was they have some, the funds are invitation only for LPs for a new fund raise ie investors in a newly raised fund)?

OR is it simply the funds they have have been written up given the sky high valuations of the tech sector? (the so-called Unicorns valued at over $1bn at last funding round)?
Yes, they have access to top-tier venture capital funds that have performed incredibly well over the last 20 years. See here: https://www.bloomberg.com/news/articles ... r-20-years
Venture capital earned an annual average of 93 percent over the past 20 years, according to the Ivy League school’s 2015 investment report posted on its website.

Re: 2017 Yale Endowment Report

Posted: Mon Apr 16, 2018 1:37 pm
by garlandwhizzer
Quote taken from Yale Endowment Report 2017

Yale’s Endowment generated an 11.3% return, net of fees, in fiscal 2017. Over the past ten years, the Endowment grew from $22.5 billion to $27.2 billion. With annual returns of 6.6% during the ten-year period,
For comparison, over the last 10 years Vanguard's Balanced Index fund returned 8.7%, better than Yale's 6.6%. Also the Vanguard S&P 500 fund outperformed Yale (14% versus 11.3% in 2017, 9.5% versus 6.6%) during both time frames. As did TSM. Swenson's results prior to those periods were quite impressive, but apparently like everything else, alternates sometimes outperform and sometimes underperform traditional allocations.

Lots of "smart" money, expecting low returns from US stocks and bonds going forward, is currently seeking alternate strategies. They are likely to add diversification but whether they will increase portfolio returns is not clear to me. For those who shy away from the more sophisticated and exotic alternates, INTL equity, especially INTL SC, EM, and possibly INTL factor approaches will increase diversification relative to a US dominated portfolio to some extent.

Apparently like many others, Swenson is not very positive about the prospects for US equity or bonds going forward.

Garland Whizzer