Yales endowment provides critical support for all of the universitys endeavors. Harvard and yale endowments lackluster gains raise wider. Yale universitys endowment, the worlds second largest, grew 12. He serves on the boards of tiaa, the brookings institution, carnegie institution, and hopkins school. Jul 31, 2019 the book is essentially a guide to yales model, which swensen wrote reluctantly, according to elliss introduction. Preservation department timeline yale university library. Swensen has an outstanding record as chief investment officer for the yale endowment, which has shown strong returns from sophisticated investments. The level of spending from the yale endowment each year is computed in accordance with an endowment spending policy that has the effect of smoothing yeartoyear market swings. The denison model vs the yale model partners capital. Beyond acadamia, fund managers and savvy individual investors are taking notice of the investment. The yale model, sometimes known as the endowment model, was developed by david swensen and dean takahashi and is described in swensens book. Yale s money guru shares wisdom with masses in the 21 years hes managed yale universitys investments, david swensen has made an average. The yale model of endowment investing has come under intense scrutiny for its performance during the recent.
Stanford enjoyed excellent investment success from july 1998 june 2018. Bottom line, he emphasizes his competitive advantage of access to toptier vc and pe that very few have access to. The yale model, sometimes known as the endowment model, was developed by david swensen and dean takahashi and is described in swensens book pioneering portfolio management. Oct 01, 2018 yale universitys endowment, the worlds second largest, grew 12. Close observers of the yale model of endowment management will appreciate that the core of it is both qualitative and personal. It consists broadly of dividing a portfolio into five or six roughly equal parts and investing each in a different asset class. Some very important answers can be found in a new book from private wealth manager, vince annable, the household endowment model wealth planning for. In 2014, i wrote to yales active external investment managers, outlining yales. For yale, where a large percentage of the annual budget is drawn from the endowment, it makes sense to place a greater emphasis on smooth spending. I read david swensons book, unconventional success, a fundamental approach to personal investing. David swensen should undoubtedly be regarded as a superinvestor. Learn about what has made david swensens investment strategy for yale s endowment so successful over the years. David swensen doesnt have a household name like warren buffett or jim rogers.
Our updates describe recent performance, address investment issues, and highlight topics relating to the university. An unconventional approach to institutional investment free press, 2000. Heres his ideal indexed portfolio for retail investors. He took over yales endowment in 1985 and achieved a return of 16. Lessons from yale s endowment model and the financial crisis by geoff considine, ph. Its the students, taxpayers, and society at large that are hurt because there is less money. Other endowments including mit, harvard and princeton now follow the yale endowment model. Swensen is perhaps the most successful university endowment manager of all time.
Underwater endowment a fund whose market value is less than its historic book value. The yale model is an investment strategy named after the university endowment that popularized the concept. The riskadjusted returns and strategies that we can implement on your behalf using an. Hes the money manager who for 34 years has been in charge of the. If imitation is the sincerest form of flattery, the yale endowment has been flattered like no other. Instead, the breakdown was caused by a failure to model for truly extreme events. The yale endowment model of investing is not dead that argued that the meltdown at certain endowments had nothing to do with purported flaws in modern portfolio theory. The strategy produced superior returns over the past 15 years and made the yale.
Yales portfolio is structured using a combination of academic theory and informed market judgment. Yale endowment return ranks last in ivy league bloomberg. Given his incredible track record, many individual investors have wanted to follow his investing advice for their own portfolios. Second, with his splendid book pioneering portfolio management. However, unlike a true endowment, the principal may be spent, but not unless or until the conditions under which the donor has specified that it may be spent have been met. In november 2009, we published a white paper on the endowment model of investing 1 see. This is the portfolio david swensen manager of the yale endowment recommends for individual investors in his book unconventional success. Imitation, of course, is the sincerest form of flattery. He began at yale in 1985 and compiled such a great record that many.
The yale portfolio this is another in my series of posts on fixed asset allocation portfolios aka lazy portfolios. But make no mistake yale has always been the big kahuna among top university endowments. I initially was enamored with the endowment investing model. Those who absorb the wisdom in this book will likewise strengthen the institutions they serve. Yale university recently released their 2017 annual report for the yale endowment, and while normally this would pass without much notice they appear to have made a few waves by continuing an ongoing feud with warren buffett. Endowment reports each year, the investments office distributes a press release on investment performance and publishes an update on the endowment. Why is the household endowment model so successful. Its really the yale model, since it was yale and its longtime endowment chief, david swensen, who led the way. Hmc may be moving towards a model more like the yale investment offices tightly. Endowment model portfolio strategy kalos financial. At yale, where he produced an unparalleled twodecade investment record of 16. Jan 23, 2019 the yale model i have been looking for a good book about asset allocation, and i decided to pick up david swensens book, unconventional success. Swensen published details of this strategy in his 2000 book, entitled.
Why the yale model of investing doesnt work for everybody. The plan has been implemented through yale s external managers, who collectively are responsible for managing nearly all of the universitys endowment assets. Sep 11, 2019 swensen is a legend at yale, and its highestpaid employee. Jan 02, 2019 other endowments including mit, harvard and princeton now follow the yale endowment model. David swensen has been the chief investment officer of yale universitys endowment fund since 1985. The book is essentially a guide to yale s model, which swensen wrote reluctantly, according to elliss introduction. A must read for every fund manager seeking to understand what the endowment model entails. Shouldnt you be investing like yale in an endowment like model. Aug 05, 2019 a successful endowment helps in reducing the financial burden of a university by generating a consistent flow of income year after year. The david swensen asset allocation value stock geek. Lessons from yales endowment model and the financial crisis by geoff considine, ph. Venture capital and leveraged buyouts present the greatest challenge, as the overwhelming demand for highquality managers reduces.
How the bogle model beats the yale model a wealth of. Cios in his image, and explained yales strategy to the world in his hit book. But hes neither the university president nor the football coach. Here you can start to see the problem with that recent 20year average. How the bogle model beats the yale model a wealth of common. The yale model is a investment philosophy that was conceptionalized by david swensen, the chief investment officer of the yale endowment office and dean takahashi, the senior direct of the yale endowment office. Book info the household endowment model from wealth. How the bogle model beats the yale model posted february 5, 2017 by ben carlson in the hierarchy of institutional investors, you wont find a more competitive group than college endowments. Asset allocation 30% total stock market15% international stocks5% emerging markets30% intermediate bonds. April 20, 2010 the devastation caused by the crash of 2008 was not limited to individual retirement portfolios. The plan has been implemented through yales external managers, who collectively are responsible for managing nearly all of the universitys endowment assets.
Many even consider him the babe ruth of endowment fund managers. Combining new technology with the old starts off the 1990s in the preservation department at yale with project open book, in collaboration with cornell university. This outstanding piece from the legend that is charles ellis provides a far deeper understanding of yales famous endowment investment model helmed by the equally famous david swensen than anything else we have read to date on this iconic investment model. David swensen is manager of yale universitys endowment fund where hes generated returns in the range of 16% annually the past couple decades.
During his fourteen years as yales chief investment officer, david f. Apr 16, 2012 the yale model is a curse for institutional funds of all types which ultimately hurts the beneficiaries. Adjusted for risk, certainly, the yale endowments record of achievements. The model portfolio of david swensen, investment manager of the yale endowment. The yale model is an investment strategy named after the university. The university uses a longterm targeted spending rate of 5. How the yale model ate endowments and everything else. In the 2016 yale endowment report, david swensen, chief investment officer of the yale endowment, wrote, in some markets, yale has little bargaining power. Yale receives one of the first national endowment for the humanities brittle books microfilm grants and begins the battle against crumbling texts in the stacks. He described his investment approach in the book, pioneering. So, weve built our firm around whats called an endowment model. Most of yale s academic rivals have spent the last two decades adopting the yale model of.
Why the endowment model has lost its edge vanguard blog. Skeptics suggest that the yale endowment, with its emphasis on diversi. The yale endowment truly did a terrific job of avoiding the stock market doldrums in the decade starting in 2000, but comparing returns exclusively from 19982017 just happens to coincide with one of the single most advantageous periods to make you look good compared to the stock market. The strategy produced superior returns over the past 15 years and made the yale endowment.
Beyond acadamia, fund managers and savvy individual investors are. In his 2016 investor letter, buffett criticized how university endowments pursue marketbeating returns through active management and suggested they might. Beinecke professor of economics and president, yale university david swensens creative and disciplined approach to investment has given yale the resources it needs to augment its capacity for excellence in scholarship and teaching. Swensens own career commitment to serving the institution swensen. Before entering your netid and password, verify that the url for this page begins with. In 2014, the yale investments office developed a plan to address climate change risks in the endowment portfolio.
Oct 29, 2011 the yale portfolio this is another in my series of posts on fixed asset allocation portfolios aka lazy portfolios. Using the yale weightings, the hybrid method is clearly smoother over the 15year period than the other two methods, the direct result of overweighting the previous years spending by 80 percent. But, nearly 20 years later, it is hard to find a large asset pool that has not mimicked the yale endowment model that swensen originated. The endowments of most prominent universities suffered terribly, causing many of these institutions to drastically slash budgets and cut. The yale portfolio the white coat investor investing. The managers of the yale endowment follow a mean variance analysis approach to portfolio management in order to estimate risk and return profiles of various asset classes. He writes that the success yale has achieved is very exceptional due to the large size of the endowment, ability to hire top talent, etc. Why you should still invest like yale seeking alpha. Like a true endowment fund, the income generated by the gift may be spent. His advice to the individual investor is really good, backed by plenty of academic research. The quantitative answer is widely known by readers of swensens book, which explains the process by which the yale endowment has been managed over the past 35 years of deliberate success. Over the past 30 years, relative to the median endowment, yales asset allocation has contributed 1.
A successful endowment helps in reducing the financial burden of a university by generating a consistent flow of income year after year. College endowments such as yale, harvard and stanford enjoyed excellent investment success from july 1998 january 2020. Soo does the manager of the yale endowment, david swenson. How the harvard and yale endowment models changed to avoid a. You can see that most of the funds have gone allin on the yale model, which relies heavily on alternative investments. Jun 26, 2017 swensen wrote about this strategy in his 2000 book pioneering portfolio management. Swensen was worried that smaller endowments might lust after yale s. Swensen was worried that smaller endowments might lust after yales. Swensen is the chief investment officer of yale university and the bestselling author of pioneering portfolio management. Theeasily misunderstood yale model institutional investor. It offers strong advice on personal investing, and it is a damning critique of the financial services industry.
The yale model outlined in swensens 2000 book pioneering. I enjoyed this book from david swenson from the yale endowment. All have the huge advantages that come with being able to bear illiquidity risk, and yale. During this period, the yale endowment has made significant changes in its assetallocation pattern. To protect your privacy, quit your web browser when you are done accessing services that require authentication. With the markets collapse, however, some have begun to question whether the yale model works as advertised.
Oct 05, 2006 yales money guru shares wisdom with masses in the 21 years hes managed yale universitys investments, david swensen has made an average 16 percent annual return better than any portfolio. Ellis starts with the basics by telling us why swensen is a. S yale s target allocation for fiscal 2020 adds more to venture capital, at 21. David swensen made yale fabulously rich and changed. Lessons from yales endowment model and the financial crisis. Swensen published his endowment investment model in the book, pioneering portfolio management. Mar 29, 2011 how the harvard and yale endowment models changed to avoid a repeat of 2009. The yale endowment model the success of the yale university endowment under david swensen and his influential book pioneering portfolio management transformed the endowment management world. The retirement architect, the yale endowment model. Lets take a look at the yale endowment s asset allocation to see how we can improve our own investment decisions. In contrast, a large percentage of traditional investment strategies using only u. David swensen took over management of yales endowment in 1985.