Learning from Yale

Yale University reported this week that its endowment had gains of 28% for the fiscal year ended in June.

For two decades Yale has been the top performing endowment and for most of that time under the management of David Swensen.

Swensen, considered by many to be one of the top money managers, is often compared with legendary investor Warren Buffet.

Swensen’s advice to investors is the same as Buffet’s: invest in index funds. Swensen has often been critical of the fees of actively managed funds that so often fail to beat their benchmarks.

Where is Yale investing to get such incredible returns? We don’t know the specifics, but much of their equity investments are low cost asset class/index funds. They also have a substantial percentage of the endowment in alternative investments, such as hedge funds and private equity. With a $22.5 billion asset base, they have the resources to obtain the best of such offerings.

Jefferson clients would have received a 24.35% return net of all fees at the highest level for the same period through investment on their 100% Equity diversified asset class portfolio - trailing Yale with their substantial allocation in alternative investments by 3.65%.

The recent sell-off in the credit markets created havoc on many hedge funds, and we don’t know what impact this might have had on Yale’s endowment.

The average endowment had a return of 17.5% for the same period. The University of Texas Management (University of Texas and Texas A&M) came in sixth among university endowments with a return of 18%.