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Yale’s Endowment Couldn’t Beat the S&P 500.

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Yale’s Endowment Couldn’t Beat the S&P 500.

Postby AfricanMustang » Fri Sep 25, 2020 4:17 pm

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. The value of Yale’s endowment increased 3% to $31.2 billion.

Yale, which released its results Thursday, also is behind Dartmouth College, a rival Ivy League school whose $6 billion endowment gained 7.6% in the fiscal year, and the Massachusetts Institute of Technology’s $18.4 billion fund, which was up 8.3%.

College endowments are now reporting investment returns for the fiscal year ended in June. Yale rival Harvard University, whose endowment has struggled in recent years, hasn’t yet released its results.

Yale’s showing reflects the continued challenges faced by its longtime endowment chief David Swensen, who pioneered the heavy use of alternative investments by university endowments at the expense of traditional stocks and bonds. Swensen has led the Yale endowment since 1985.

The strategy worked brilliantly in the 1990s and 2000s but has not done as well in the past decade as U.S. stocks have outperformed and some alternative strategies have faltered. Yale’s 10-year annualized performance of 10.9% roughly matches a 70/30 mix of U.S. stocks and bonds.

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. That may be the lowest allocation of any major college endowment. Yale’s largest target asset allocations are to absolute return, mostly hedge funds, at 23.5%, venture capital at 23.5% and leveraged buyouts at 17.5%. Bonds and cash together total 7.5%.

Yale’s absolute return investments are designed to produce good risk-adjusted returns regardless of the direction of financial markets.

Endowments with more than $1 billion in assets as measured by NACUBO/TIAA had an 11% exposure to domestic stocks in fiscal 2019 while the smallest ones had a 45.7% allocation.

https://www.barrons.com/articles/yale-e ... 1600981440?
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