To Succeed at Investing, Do What Yale Does

johnN

https://www.kiplinger.com/article/investing/T047-C032-S014-to-succeed-at-investing-do-what-yale-does.html

To Succeed at Investing, Do What Yale Does
Yale's endowment has delivered consistent income with minimal stock risk. Here's a look at how they did it and what it could mean for you and your portfolio

.Yale takes a much different approach as you can see with their published asset allocation targets for their 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%

rforno

Yeah, okay. Nice headline, Kip, but any retail investor putting 50% of their portfolio into alternatives is nuts. Most retail investors have little clue how to monitor, manage, or investigate such vehicles or ask the appropriate questions before going into them. No thanks.

Old_Skeet

Perhaps, Yale should package a portfolio like this into a mutual fund and make it available to retail investors. I'd probally bite and add it to my speciality sleeve where I hold my private equity an opportunity fund LPEFX.

hank

Agree with @rforno that most of these asset classes are outside the capabilities of smaller investors to own or manage,

Interesting Coincidence: Steven Roach (cited by @rono recently) has strong ties to Yale. From Wikipedia: “Steven Roach is an American economist and serves as senior fellow at Yale University's Jackson Institute for Global Affairs ...” Whether Roach’s views helped influence Yale’s endowment is another question.

What I like: It’s a widely diversified portfolio that’s not 100% dependent on the whims of the equity markets. I think over-dependence on equities / equity funds is the #1 reason many investors bail out at the wrong times after sustaining heavy losses.

What puzzles me: An amazingly low commitment to equities. Less than 3% domestic. With foreign thrown in, looks like the equity commitment is still under 20%.

What’s somewhat shocking: Low 7% commitment to cash and bonds.

What to beware of: The 10% real estate allocation. Owning “real estate” directly and investing in REIT funds are quite different and shouldn’t be conflated. Should the average retail investor keep 10% in a REIT fund? I’d say NO, unless intended as a short-term speculative play.

What concerns me somewhat : The various alternative strategies such as absolute return may be available to small investors, but those types of funds typically suffer from oppressively high fees and/or erratic performance. Further, without ability to lock-up investor money for longer periods (as an endowment can) mutual funds attempting those strategies are highly vulunerable to the effects of inflows and outflows.

Thanks @JohnN - Interesting article.

Mark

Well agreeing with rforno in general it looks like the first thing one needs to do is form or compile a MASSIVE pool or pile of OPM (other peoples money). Then I bet you'll get lots of help in understanding all their alternative investments.

I've been casually following Swenson and the Yale endowment since way back in the FundAlarm days and I don't ever remember it looking like whatever the above is. I could be wrong.

Rbrt

Remember when they used to tell us how Harvard had huge acreage of managed Timber? Oh yea, that’s something I can replicate. But here from Barron’s - keep it simple:

https://www.barrons.com/articles/ivy-league-endowments-1538530379

“The Yale model, however, hasn’t delivered superior returns in the past decade, and it’s far from clear that the diversified, high-fee approach will outperform in the future even if the U.S. stock market falters. One reason: There is now a huge amount of money chasing alternative strategies like private equity and venture capital. This is something that David Swensen may want to address.”

Is there any chance that Universities use Beardstown Ladies accounting? There is no mention of how much is coming in.
https://news.yale.edu/2019/09/27/investment-return-57-brings-yale-endowment-value-303-billion

Mark

So this details the Yale Investment Endowment in 2005

Observant1

The Yale Endowment has a perpetual time horizon.
Because of its scale, the endowment has access to the best alternative asset managers and leverage to negotiate "reasonable" fees for a particular asset class.
Individual investors have a finite time horizon and limited (or no) access to these alternative asset managers. Therefore these investors shouldn't attempt to emulate the Yale Endowment model.

sma3

I have read all of Swenson's books ie "Pioneering Portfolio Management" and worked very hard at trying to find funds or ETFs that could possibly duplicate his "private equity" and absolute returns and venture capital.

In a word there is no retail alternative. sure now a days you can find funds that mange these strategies, but you can't find ones that produce the results Yale can demand.

One of my son's friends dad worked with Swenson and he explained their due diligence to me once a while ago. It is extensive and lengthy and they have resources to find the best mangers that you and I can not even dream of.

Maybe prompted by intense interest from individual investors, Swenson wrote a book with asset allocation advice for individual investors "Unconvential Success"

It has good advice ala Buffet. Index funds wide diversification and as I remember mostly SP500 REITS Treasuries. Worth reading but it will not let you invest like Yale

I am not sure why you would want to because their recent returns have not been stellar ( 6% in 2019) , but then unless you are buying FANGMA you are in the dust like everybody else.