Yale University Case Study

The Yale University Endowment’s returns have been dominating among all endowments over the past 10 years. The successful story of Yale cannot be separated from the story that how they survived in a number of storms and turmoil in financial market over the years. The university enjoyed tremendous returns from the unconventional approach that adopted to manage its endowments. Yale had made significant investments in less efficient equity markets such as private equity, real estate and absolute return investment rather than keeping its substantial share in domestic equity and shares. No wonder that until the financial crisis in 2008, many organizations attempt to copy the Yale’s model.

However after the financial crisis, David Swensen, the head

Considering the importance of this, Yale’s investment Committee reviewed its portfolio at least once a year. In order to decide the target allocation, the organization performed a mean-variance analysis of the expected returns and risks and compared them with those of past Yale allocations and the current mean allocation of other universities. Moreover, the organization also examined the long-run implications of its allocation for the downside risk to the

For fiscal 2011, the real estate allocation was around 28% of its assets. The real estate portfolio of Yale was reviewed by their real estate managers and Yale’s had exercised a wide range of control and continuously reviewed the investment decision of the real estate managers. Additionally, they had pared its portfolio to focus on those managers with whom the staff was most comfortable in terms of people and execution. Since there has a lot of challenges invest in the real assets, recently, Yale’s has considering to reclassify the real assets into two groups, real estate and natural resources (oil and gas, minerals and mining, and timberland).

In dealing with the liquidity issues, Yale’s had evolved several of non-disruptive sources of liquidity, such as using bonds and equities as collateral for short term loans. Yale’s also had access to commercial paper facilities to support endowment liquidity. The forecasting also plays important role to avoid panicking. And the last one is at the 50% of illiquid assets goals should produce the slightly lower rates of return but lower volatility. Those are the strategy of Yale to face the liquidity