Spilling the Beans on the Yale Endowment

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The Yale Endowment had spectacular year in venture capital; in fact many decades worth of happy returns. The 2015 annual report is dedicated to…

“Yale’s successful entrepreneurs, technologists, and investors, who strive to transform markets, develop new products and processes, and change the world”.

But why dedicated a whole report to a subset of an asset class (private equity) to trumpet the Yale Endowment’s grand returns?

Get Lucky.  Since taking over Yale endowment in the early 1980s, David Swensen shifted the endowment away from traditional stocks and bonds towards illiquid securities found in private markets.  Higher returns can be found in private markets since the market is not efficiency: there is a lack of information. This in part lead to the spectacular returns.

Another contributing to Yale’s success is timing or just luck. David Swensen’s change in portfolio allocation paralleled the boom in tech beginning in early 1980s. And given the endowment’s long-term perspective, the fund benefit from internet bubble of the 1990s.

Social Network. Yale’s alumni network also contributed the endowment stellar performance. Of the many Yale alums profiled in annual report, two are pioneers: Leonard Baker and William Draper III.

Mr. Draper besides founding Sutter Hill Partners in 1964 is responsible for Tim Draper of DJF. Tim Draper is also responsible for Valley Girl, Jessie Draper. Leonard Baker became a Sutter partner in 1973. Besides sitting on many boards, Mr. Baker belongs to GIC, Singapore’s Sovereign Wealth Fund.

It’s alumni connections which bring investment ideas and opportunities to Yale.  Yale’s investment office also produces which goes onto to work in venture capital. Profiled in the annual report was Nick Shalek who graduated from Yale in 2005 and when to establish Ribbit Capital. In addition, the current head of Stanford’s endowment, Robert F. Wallace, also work at Yale’s investment office and graduated from Yale.

Spilling the Beans. After two decades, why now is Yale reporting its success in venture capital? The secrets of Yale’s success are well known after the publication of David Swensen’s Pioneering Portfolio Management.

Given the outcry over high college tuition and tax-exempt status of university endowments, the Yale 2015 annual report is more marketing than investing. Yale wants to appear to be doing good, rather than just making lots and lots of tax-free money.


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