Swenson's Yale Portfolio

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garlandwhizzer
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Swenson's Yale Portfolio

Post by garlandwhizzer »

https://www.marketwatch.com/articles/ya ... latestnews

It's been a tough time recently for alternate investments like huge overweights in real estate, hedge funds, venture capital, buyouts etc.--all assets which Swenson has consistently preferred to US stocks and bonds. In the 1990s and 2000s, he made excellent choices in these alternate areas and outperformed. Recently his performance has lagged and in sum over the past 10 year his Yale endowment returns do not exceeding a 70 S&P 500/30 US Core Bonds which can be purchased for less than 0.05%/yr. Swenson is a very accomplished investor, but even he sometimes lacks magic with markets. He may outperform going forward or he may not. High levels of skill, huge intelligence, extensive knowledge and decades of market experience are helpful in investing but provide no guarantees of better risk adjusted returns over a given time frame than a very simple, very cheap portfolio. It is important to keep in mind that even the experts have limited visibility into what the market is going to do next. Sometimes they guess right; other times they guess wrong. More like quantum mechanics (probabilities only) than Newtonian physics (mathematical certainty).

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Re: Swenson's Yale Portfolio

Post by Robot Monster »

I keep blinking to make sure I am reading this correctly:

"Swensen long has disdained U.S. stocks despite their impressive performance, and Yale’s endowment has a weighting of just 2.25% in domestic equities."

Sorry, does that really say 2.25% allocation to domestic equities? Whaaat?
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Re: Swenson's Yale Portfolio

Post by nisiprius »

(His last name is spelled Swensen, with two e's, Scandinavian fashion).
Robot Monster wrote: Thu Sep 24, 2020 5:55 pm I keep blinking to make sure I am reading this correctly:

"Swensen long has disdained U.S. stocks despite their impressive performance, and Yale’s endowment has a weighting of just 2.25% in domestic equities."

Sorry, does that really say 2.25% allocation to domestic equities? Whaaat?
That's the number in the Marketwatch article linked by garlandwhizzer. I, too, wonder if it can possibly be accurate.

Well, this article in news.yale.edu says so, too! Or, at least, 2.75% in US stocks and 13.75% in international stocks, so, of the equity component, 16.5% US and 83.5% international.
Asset allocation
Yale continues to maintain a well-diversified, equity-oriented portfolio, with the following asset allocation targets for fiscal 2020:

Absolute return 23%
Venture capital 21.5%
Leveraged buyouts 16.5%
Foreign equity 13.75%
Real estate 10%
Bonds and cash 7%
Natural resources 5.5%
Domestic equity 2.75%
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willthrill81
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Re: Swenson's Yale Portfolio

Post by willthrill81 »

The first couple of paragraphs of the MarketWatch article are patently ridiculous.
Yale University’s endowment, one of the largest in the U.S., posted a 6.8% investment return in the year ended June 30, a mediocre showing given the performance of U.S. stocks and bonds.

Yale trailed both the S&P 500, which had a total return of 7.5% (including reinvested dividends), and U.S. bonds, which returned 8.9%, as measured by the iShares Core U.S. Aggregate Bond (ticker AGG) exchange-traded fund.
Since when was Yale's bogey an all-U.S. portfolio?

By comparison, Vanguard's Global Wellington Admiral fund returned only 1.60% over the same period.
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Re: Swenson's Yale Portfolio

Post by JohnDoh »

nisiprius wrote: Thu Sep 24, 2020 5:58 pm (His last name is spelled Swensen, with two e's, Scandinavian fashion).
Robot Monster wrote: Thu Sep 24, 2020 5:55 pm I keep blinking to make sure I am reading this correctly:

"Swensen long has disdained U.S. stocks despite their impressive performance, and Yale’s endowment has a weighting of just 2.25% in domestic equities."

Sorry, does that really say 2.25% allocation to domestic equities? Whaaat?
That's the number in the Marketwatch article linked by garlandwhizzer. I, too, wonder if it can possibly be accurate.

Well, this article in news.yale.edu says so, too! Or, at least, 2.75% in US stocks and 13.75% in international stocks, so, of the equity component, 16.5% US and 83.5% international.
Asset allocation
Yale continues to maintain a well-diversified, equity-oriented portfolio, with the following asset allocation targets for fiscal 2020:

Absolute return 23%
Venture capital 21.5%
Leveraged buyouts 16.5%
Foreign equity 13.75%
Real estate 10%
Bonds and cash 7%
Natural resources 5.5%
Domestic equity 2.75%
In term of common stocks clearly seems to be a strong value play. Translating this to a more-or-less "normal" portfolio, you end up with something like a 60/40-ish or 70/30-ish:

10% US
50% Intl [how much DM vs EM?]
10% REIT
30% Bond

Actually not *that* weird... though no doubt many here would be apoplectic about the US/INTL allocations! :shock:
itsmeagain
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Re: Swenson's Yale Portfolio

Post by itsmeagain »

Robot Monster wrote: Thu Sep 24, 2020 5:55 pm I keep blinking to make sure I am reading this correctly:

"Swensen long has disdained U.S. stocks despite their impressive performance, and Yale’s endowment has a weighting of just 2.25% in domestic equities."

Sorry, does that really say 2.25% allocation to domestic equities? Whaaat?
It's probably not nearly as low as that number implies. I'd guess that most of the Venture Capital and Leveraged Buyouts, which together make up another 38% of the endowment (see nisiprius post), are domestic equities of sorts -- just not the usual ones traded on stock exchanges and inckuded in mutual funds.
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Re: Swenson's Yale Portfolio

Post by Angst »

garlandwhizzer wrote: Thu Sep 24, 2020 5:18 pm https://www.marketwatch.com/articles/ya ... latestnews

It's been a tough time recently for alternate investments like huge overweights in real estate, hedge funds, venture capital, buyouts etc.--all assets which Swenson has consistently preferred to US stocks and bonds. In the 1990s and 2000s, he made excellent choices in these alternate areas and outperformed. Recently his performance has lagged and in sum over the past 10 year his Yale endowment returns do not exceeding a 70 S&P 500/30 US Core Bonds which can be purchased for less than 0.05%/yr. Swenson is a very accomplished investor, but even he sometimes lacks magic with markets. He may outperform going forward or he may not. High levels of skill, huge intelligence, extensive knowledge and decades of market experience are helpful in investing but provide no guarantees of better risk adjusted returns over a given time frame than a very simple, very cheap portfolio. It is important to keep in mind that even the experts have limited visibility into what the market is going to do next. Sometimes they guess right; other times they guess wrong. More like quantum mechanics (probabilities only) than Newtonian physics (mathematical certainty).

Garland Whizzer
I'm not that interested in the marketwatch article, but I did enjoy gw's post a lot, especially the part at the end which I underlined. It brought to mind two separate ideas.

1) Most of us who post regularly in this forum are at least "experts" unto ourselves in that we rely upon our own personal expertise for the management of our lifelong investment portfolios.

2) I believe I have achieved something akin to an 80/20 (quantum mechanics/Newtonian physics) portfolio, comprised of 80% equity and 20% TIPS LMP, I-Bonds and EE-Bonds.

I can add that the 80% equity is comprised of an expertly designed blend of TSM/Tot Intl/SC Intl/EM/REIT/US SCV
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Re: Swenson's Yale Portfolio

Post by Normchad »

Nobody knows nothing. That includes David Swenson, Yale, and myself......

Then again, I don't think the Yale Endowment has the same goals and constraints as I do. They probably have received gifts that are required to be invested in a certain way. And their time horizon is Infiniti, I think.

In any given time period, it would be easy to look at them, and look at whatever broad category did best during that time, and say "well, they should have done that!". Obviously now, Yale should have put the whole thing in Tesla back in January!

Of course, none of this changes the fact that nobody knows nothing..... And lots of people say they agree with it, but they don't behave that way. They think their fancy degrees, or prestigious jobs, occupational accolades or past success means they are different.....
hyperon
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Re: Swenson's Yale Portfolio

Post by hyperon »

I honestly don't understand the point of comparing the Swenson portfolio's performance to the S&P500. It completely ignores that the goals that govern Swenson's portfolio construction are not going to be the same as those of a retail investor (oh, what Norm said!). Isn't comparing everything to a 10 year bull market period in US large cap stocks that nobody knew was coming getting old?
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Re: Swenson's Yale Portfolio

Post by Northern Flicker »

The article is self-contradictory. It says:
Yale’s absolute return investments are designed to produce good risk-adjusted returns regardless of the direction of financial markets.
And it also says that the Yale annual return was 6.8% vs 7.5% for the S&P500. I don't think being 70bp below the S&P500 over a year is inconsistent with the goals of an all-weather portfolio.

As far as allocation to US stock, I point out that venture capital and leveraged buyouts are a form of equity.
Risk is not a guarantor of return.
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Re: Swenson's Yale Portfolio

Post by aristotelian »

Robot Monster wrote: Thu Sep 24, 2020 5:55 pm I keep blinking to make sure I am reading this correctly:

"Swensen long has disdained U.S. stocks despite their impressive performance, and Yale’s endowment has a weighting of just 2.25% in domestic equities."

Sorry, does that really say 2.25% allocation to domestic equities? Whaaat?
Yale and a lot of the big endowments have moved into private equity. Arguably that is a form of US equity but they consider it separate. Also hedge funds that likely contain US equity but are considered a different category. I still find it crazy that they don't have at least 50% in ordinary S&P500. Ford Foundation is another example - 1.9% US equity.
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Re: Swenson's Yale Portfolio

Post by columbia »

Yale is planning to be around for another 300 years and I'm not.
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Re: Swenson's Yale Portfolio

Post by alluringreality »

aristotelian wrote: Fri Sep 25, 2020 7:19 am I still find it crazy that they don't have at least 50% in ordinary S&P500.
I haven't read Pioneering Portfolio Management, because it's not really relevant to me. Unconventional Success clearly does not support this sort of idea. Based on David Swensen's suggestions for retail investors, I'm not at all surprised to see that each Yale investment category happens to be limited to less than 25%.
Targets: 15% I Bonds, 15% EE Bonds, 45% US Stock (Mid & Small Tilt), 25% Ex-US Stock (Small Tilt)
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Re: Swenson's Yale Portfolio

Post by aristotelian »

alluringreality wrote: Fri Sep 25, 2020 8:12 am
aristotelian wrote: Fri Sep 25, 2020 7:19 am I still find it crazy that they don't have at least 50% in ordinary S&P500.
I haven't read Pioneering Portfolio Management, because it's not really relevant to me. Unconventional Success clearly does not support this sort of idea. Based on David Swensen's suggestions for retail investors, I'm not at all surprised to see that each Yale investment category happens to be limited to less than 25%.
2% is substantially less than 25%! Also I believe the "Swensen portfolio" generally has about 50% in public equities, although that includes US and international.
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Re: Swenson's Yale Portfolio

Post by David Althaus »

If I were inclined toward a financial advisor Mr. Swensen would be hired without hesitation. That said there are some issues with university endowments which seem to never be evaluated.
1. Mr. Swensen and his staff require salary and benefits.
2. Lots of smart people in the industry vie to outdo each other and they probably are just as talented--or about as talented--as the Yale staff.
3. There is a seemingly endless supply of contributions.
4. There really is no portfolio end date.

All these issues argue for a 60/40 indexed portfolio rebalanced once per year by the controller (or their administrative assistant). One could also argue, because it's a perpetual portfolio, 70/30 or 80/20 would work even better.

As is often communicated on this forum, at their chosen asset allocation with the three fund portfolio, over every 20 year period they will be in the top decile of all money managers. Why not guarantee yourself an A and call it a day?

All the best
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Re: Swenson's Yale Portfolio

Post by alluringreality »

aristotelian wrote: Fri Sep 25, 2020 8:17 am 2% is substantially less than 25%! Also I believe the "Swensen portfolio" generally has about 50% in public equities, although that includes US and international.
David Swensen recommends that retail investors invest with an "equity bias", which means 60% or more in domestic stock, international stock, and REIT. He recommends limiting categories to no more than 25% of the total in Unconventional Success. The Yale portfolio likely still exhibits an "equity bias" by being invested in the following categories.
Absolute return 23% (I'm not familiar with their hedge fund)
Venture capital 21.5%
Leveraged buyouts 16.5%
Foreign equity 13.75%
Domestic equity 2.75%
Last edited by alluringreality on Fri Sep 25, 2020 8:44 am, edited 1 time in total.
Targets: 15% I Bonds, 15% EE Bonds, 45% US Stock (Mid & Small Tilt), 25% Ex-US Stock (Small Tilt)
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Re: Swenson's Yale Portfolio

Post by aristotelian »

alluringreality wrote: Fri Sep 25, 2020 8:27 am
aristotelian wrote: Fri Sep 25, 2020 8:17 am 2% is substantially less than 25%! Also I believe the "Swensen portfolio" generally has about 50% in public equities, although that includes US and international.
David Swensen recommends that retail investors invest with an "equity bias", which means 60% or more in domestic stock, international stock, and REIT. He recommends limiting categories to no more than 25% of the total in Unconventional Success. The Yale portfolio clearly exhibits an "equity bias" by being invested in the following categories.
Absolute return 23%
Venture capital 21.5%
Leveraged buyouts 16.5%
Foreign equity 13.75%
Domestic equity 2.75%
Understood. I still find it surprising S&P500/US equity is so low. 5X lower than foreign equity, for example.
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Re: Swenson's Yale Portfolio

Post by nisiprius »

columbia wrote: Fri Sep 25, 2020 7:33 am Yale is planning to be around for another 300 years and I'm not.
I used to believe throwaway remarks about the holding period for endowment funds being institutional lifetimes rather than human lifetimes--until 2008-2009 when it transpired that Harvard had invested most of its operating funds in its endowment fund. The result was that they were short of money to pay salaries and pay for huge construction projects in progress (notably in Allston). Employees were laid off, research projects were put on hold or abandoned because the grant applications had assumed that research facilities under construction would be ready on schedule.

I don't know if this was a unique anomaly, i.e. only Harvard was doing this, or whether Harvard was just doing it more or got caught worse. It seems that Yale does not regard its endowment as strictly earmarked for the long-term future: Warner House Memo: Yale to curb spending
Part of Yale’s advantage is its ability to lean on the endowment in tough times, [Deputy Provost Charles] Long said.
I don't know whether using the endowment to fund short-term operating expenses is sound policy or not, but it does mean that the endowment isn't solely for centuries ahead.
Last edited by nisiprius on Fri Sep 25, 2020 9:30 am, edited 2 times in total.
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Re: Swenson's Yale Portfolio

Post by topper1296 »

Interesting that the allocation to real estate has been roughly cut in half from not that many years ago. It was ~18% in 2014.
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Re: Swenson's Yale Portfolio

Post by Ferdinand2014 »

alluringreality wrote: Fri Sep 25, 2020 8:12 am
aristotelian wrote: Fri Sep 25, 2020 7:19 am I still find it crazy that they don't have at least 50% in ordinary S&P500.
I haven't read Pioneering Portfolio Management, because it's not really relevant to me. Unconventional Success clearly does not support this sort of idea. Based on David Swensen's suggestions for retail investors, I'm not at all surprised to see that each Yale investment category happens to be limited to less than 25%.
Yep. Using Yales endowment investments as a framework for investment strategy is silly. I am not sure what his benchmark is given an unlimited timeline. He has pointed out (similar to Warren Buffett) that there are really 2 types of investors. Them and us. For the us, David Swensen portfolio in "Unconventional Success" is 30% US equities, 20% US REITS (also US equities with a tilt), 15% developed international, 5% emerging markets, 15% US TIPS, 15% LT US nominal treasurys. He also points out that individual circumstances such as personal business ownership, home ownership, income streams, local tax laws, risk tolerance, and time frame are important items to consider in the allocation choice.
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Re: Swenson's Yale Portfolio

Post by cheezit »

nisiprius wrote: Fri Sep 25, 2020 8:55 am
columbia wrote: Fri Sep 25, 2020 7:33 am Yale is planning to be around for another 300 years and I'm not.
I used to throwaway remarks the holding period for endowment funds being institutional lifetimes rather than human lifetimes--until 2008-2009 when it transpired that Harvard had invested most of its operating funds in its endowment fund. The result was that they were short of money to pay salaries and pay for huge construction projects in progress (notably in Allston). Employees were laid off, research projects were put on hold or abandoned because the grant applications had assumed that research facilities under construction would be ready on schedule.

I don't know if this was a unique anomaly, i.e. only Harvard was doing this, or whether Harvard was just doing it more or got caught worse. It seems that Yale does not regard its endowment as strictly earmarked for the long-term future: Warner House Memo: Yale to curb spending
Part of Yale’s advantage is its ability to lean on the endowment in tough times, [Deputy Provost Charles] Long said.
I don't know whether using the endowment to fund short-term operating expenses is sound policy or not, but it does mean that the endowment isn't solely for centuries ahead.
As long as the withdrawal rate has a reasonable cap, I don't see what's wrong with funding some operating expenses with the endowment. Seems silly to me to earmark it for erecting giant edifices and whatnot.
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Re: Swenson's Yale Portfolio

Post by azanon »

nisiprius wrote: Fri Sep 25, 2020 8:55 am
columbia wrote: Fri Sep 25, 2020 7:33 am Yale is planning to be around for another 300 years and I'm not.
I used to throwaway remarks the holding period for endowment funds being institutional lifetimes rather than human lifetimes--until 2008-2009 when it transpired that Harvard had invested most of its operating funds in its endowment fund. The result was that they were short of money to pay salaries and pay for huge construction projects in progress (notably in Allston). Employees were laid off, research projects were put on hold or abandoned because the grant applications had assumed that research facilities under construction would be ready on schedule.

I don't know if this was a unique anomaly, i.e. only Harvard was doing this, or whether Harvard was just doing it more or got caught worse. It seems that Yale does not regard its endowment as strictly earmarked for the long-term future: Warner House Memo: Yale to curb spending
Part of Yale’s advantage is its ability to lean on the endowment in tough times, [Deputy Provost Charles] Long said.
I don't know whether using the endowment to fund short-term operating expenses is sound policy or not, but it does mean that the endowment isn't solely for centuries ahead.
Exactly. Having a 300-yr time horizon still doesn't protect you from ruin if the hits you take in the short-term are large enough.

In Swenson's defense, I think his main reason for investing heavy in those alternates as Yale is not because they have that very long time horizon, rather because they claim to have access to purchasing some very lucrative alts that simply aren't available to individual investors.
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Re: Swenson's Yale Portfolio

Post by nisiprius »

I was also heartbroken to learn just a few years ago that Gregory Bateson's story about the oak beams of New College Hall, Oxford, is untrue. (The story is that the beams only last four hundred years due to eventual beetle infestation, and that Oxford owns forest land, and that one oak grove is devoted specifically to growing oaks to replace the beam of New College Hall). I really wanted to believe that one.
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Re: Swenson's Yale Portfolio

Post by Northern Flicker »

The 300-year horizon should be interpreted as analogous to a 300-year individual retirement to fund, not a 300-year accumulation period.
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