Endowments' Hedge Fund Bet Has Time on Its Side
Yale and its rival asset managers can look decades into the future. More than a century of returns shows what an advantage that is.
Yale has been playing the long game for more than a century.
Photographer: Al Bello/Getty Images
Most of us want to take the long-term perspective, but cannot. There are too many needs that come up in the short term, and too many risks in the next days, weeks or months that make it harder to get through to the next decades. That is the main reason why the big university endowments are so envied, and so admired. Even more than pension fund managers, those running endowments can look decades into the future, and they can even call on the best ideas in academe.
What follows is by far the most famous asset allocation in the endowment world, and one of the most influential experiments in long-term asset allocation of our time. It shows the great shift that David Swensen has made in the Yale University endowment since he took over in 1986. Domestic equities were the bulk of the portfolio he inherited; they now account for only 2.7%. It didn’t have hedge funds or private equity at the time; now these alternative assets make up more than half Yale’s assets: