Yale University Endowment’s investment portfolio gained 8.9% per annum during the decade ending 30th June 2010. The endowment was valued at USD 16.7 billion at that time. Its private equity portfolio contributed an annual return of 6.2% over the 10 years to the end of June, while its return of 18.1% for the fiscal year 2010 was a far cry from the 24.3% loss the endowment experienced on its private equity investments in the year to June 2009.
Yale see private equity as an important part of its investment strategy – its target allocation to the asset class increased by seven percentage points to 33% between June 2009 and June 2010, making it the highest target allocation for any of the asset classes it intends to invest in. This underpins an investment strategy that is fairly unique, particularly for an educational institution, in its dependency upon alternative investments, with just 11% of its assets targeted for investments in the traditional asset classes of domestic stocks and bonds and 80% set aside for private equity, real assets and absolute return investments.
The endowment believes that alternative assets, by their very nature, tend to be less efficiently priced than traditional marketable securities, which provides opportunities to exploit market inefficiencies through active management. It feels that its long-term horizon makes it suited to exploiting these illiquid, inefficient markets.
Yale University Endowment’s private equity investments focus on buyout and venture capital partnerships with managers that emphasise a value added approach to investing, as opposed to relying solely on financial engineering to generate returns.
More information on institutional investors in private equity can be found on Preqin’s Investor Intelligence database.