Yale’s PE portfolio returns 12.1 pct, gets higher allocation

  • Assets under management: $29.4 bln
  • PE allocation: 15 pct
  • Why this is important: Yale has a large alternatives portfolio, and the model is inspirational for other college endowments.

Yale University endowment’s leveraged buyouts portfolio beat previous-year returns and received a higher allocation for 2019.

The LBO portfolio returned 10.1 percent over 10 years as of June 30, 2018, up from 8.8 percent for the year-earlier period. It returned 12.1 percent over 20 years as of the same date, a news release said.

Yale expected LBOs to return 10 percent in 2018, its 2017 annual report said.

The school lifted the LBO allocation to 15 percent for 2019 from 14 percent in 2018, the release said.

Chief Investment Officer David Swensen is a longtime proponent of alternatives.

Alternatives provide “not only diversification benefits, but also abundant opportunities for astute managers to add value in the investment process,” Yale’s 2017 annual report said.

It’s not surprising, then, that alternatives account for almost half of Yale endowment’s total portfolio in 2018.

Alternatives include LBOs, venture capital, real estate and natural resources in Yale’s endowment.

Yale increased allocation to VC to 18 percent from 17 percent for fiscal 2017. Venture returned 16 percent over 10 years and 24.6 percent over 20 years as of June 30, 2018, the news release said.

The endowment cut allocations to real estate and natural resources by half a percentage point each.

Yale’s real estate portfolio returned 2.7 percent over 10 years and 9 percent over 20 years as of June 30, 2018. Natural resources returned 1.7 percent over 10 years and 15.2 percent over 20 years as of June 30, 2018.

Yale endowment’s total portfolio increased to $29.4 billion, up by $2.2 billion, and returned 12.3 percent for the fiscal year ended June 30, 2018.

While Yale endowment’s total portfolio returns increased from 11.3 percent in fiscal 2017, the endowment underperformed compared to its peers.

Massachusetts Institute of Technology returned 13.5 percent, and University of Pennsylvania returned 12.9 percent in the period.

Action Item: Read the Yale press release here https://bit.ly/2y817F3