If Yale isn't smart enough to beat the market, who can?
Yale University's endowment is the second largest in the United States and it took a major hit in the last year. The interesting thing is that for years, Yale's chief investment officer, David Swensen, was widely respected as an investment guru. Unfortunately, the trendy touchstones of his investment strategy did not look so smart last year.
And it leaves open an unpleasant question: When you consider that the smart money -- people who run the biggest pools of money -- charges 2 percent of assets and 20 percent of the profits it earns for clients, is the smart money really smart? Or did it just get into the right clubs that all breathe the same rarefied air and follow the same investment strategies? And if the smart money is no smarter than the rest of us, what's the point of trying to predict the future and invest in it?
These questions come to mind when examining the details of Yale's recent performance. Its endowment fell 24.6 percent in the year ending June 2009 -- "beating" the 18 percent median decline of large university endowments. And the biggest hits came in the parts of its portfolio that had previously been seen as works of investment genius.
To wit, Yale's largest category of assets -- the ironically-dubbed "real asset" category -- which includes real estate, commodities and timber -- fell 33.9 percent -- more than all the others. Yale's energy investments lost 47 percent. Its leveraged buyout and venture capital investments lost 24 percent of their value. Meanwhile, Yale's more prosaic investments in stocks and bonds declined a mere 13 percent.
As part of a club, Yale is not alone in its Ivy League misery. Harvard's endowment fell 27 percent to $26 billion and it laid off 275 people. And Stanford's endowment, which tumbled 30 percent to $12 billion, prompted the loss of 472 jobs in sunny Palo Alto.
But fret not for Yale. Despite budget cuts, Yale plans no layoffs and it still has $16.3 billion left in its endowment -- down a mere $6.6 billion from where it stood the year before. Although I have to say that I am puzzled at how Yale arrived at the mere 24 percent decline in its private equity investments, since so many of those are likely not traded on public markets.
Perhaps there's less to Yale's endowment than meets the eye. And those who say that it's hard to beat the market are looking smarter all the time.
Peter Cohan is a management consultant, Babson professor and author of eight books including, You Can't Order Change. Follow him on Twitter. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 2)
9-23-2009 @ 8:19PM
Uncledickierc said...
Looks like the economics graduate school could use some new faces.
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9-23-2009 @ 8:34PM
howardroark43 said...
bail them out and then insert a socialist-marxist agenda within our higher education system... hmmmm... we already have that. ok, bail them out anyway and let them take mountains of cash from the saudis to fund the spread of islamic supremecism on the west! oh... wait a sec... tha's already going on.
nevermind.
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9-23-2009 @ 8:56PM
Ed said...
How ironic... all these big liberal colleges with their liberal business schools send liberal graduates to the run the major Wall Street corporations, and they loose billions??? Serves them right.
But wait a minuet... they all still have billions in the bank and they are laying people off??? Isn't that counter to their buddy Obamas intent of spreading the wealth???
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9-23-2009 @ 9:18PM
Larry said...
Ed: Ground control to Planet Ed. What solar system are you on? Yale is not a liberal college. Quite to the contrary, it is a bastion of conservative thought. It's graduates are the leaders of fundamental conservative thought. You use unsubstantiated innuendo to associate the liberal wing with Yale and its is totally in error. Perhaps the only thing that kept you out of high school was grade school.
9-24-2009 @ 4:41AM
Master Shake said...
I love the unwashed neocon masses who equate education with left wing politics. But in their defense, an education does make it more likely that you will be liberal, since the definition of a "liberal" is anyone who supports progress and freedom. Look it up in a dictionary if you don't believe me.
9-23-2009 @ 9:02PM
algonquin j. calhoun said...
ok, eli, here's how to beat the market: a penny stock, Pure Spectrum (PSPM), has reinvented the LED light bulb...stock is selling on the pink sheets for .28 cents, a sure thing to hit $3 by the end of the year...
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9-23-2009 @ 9:00PM
tench said...
Of all schools, the "Yalees" should have known to invest in a socialist leaning portfolio. What is very confusing is the fact that many of the government's moves are more fascist (i.e., actually running companies like GM and Chrysler) than socialist (where the government has influence but is basically hands off). Maybe that difference confused the investors. Since the government doesn't sell stock in itself, it would be tough to pick a stock that would thrive in a society our president is driving us to. To him, all capatilist companies are evil.
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9-23-2009 @ 9:14PM
Jim Oshust said...
Yale has, along with Harvard & Princeton have produced so many non useful, eggheaded, ultra liberal one worlders, they have no sense of reality. Better yet all three schools, particularly the Harvard Law School, should go bankrupt. Then ACORN can come in and rent the dorms to crooks and Barney Franks can find more young men to work for him rather than wandering the streets of Washington at night.
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9-23-2009 @ 9:18PM
Larry said...
You bingo brains speak with no grey matter to back up your assertions. Hello? Yale? As conservative an institution as possible. The birthplace of right wing thought. Graduates who run the very companies that beg the government for bailouts. Get an education then post. Until then, keep the door to your trailer closed and watch some more Jerry Springer.
9-24-2009 @ 8:43AM
Jim Hummel said...
Uh, it's Frank, idiot.
9-23-2009 @ 9:24PM
anaismorr said...
Graduating from a second tier private university and worked side by side with Ivy League graduates, I often wondered what the big deal was about graduating from these schools. Most of the graduates I encountered were smug and thought it was beneath them to type, scan and make copies. Most of these grads think they are simply entitled to high paying salaries and are "owed" not to start off entry level because they simply graduated from these schools. Seriously...give me a break.
What is ironic is that we have two presidents back to back (Bush Jr and Obama) who are products of Yale and Harvard and are terrible leaders. Glad I saved some money and graduated from my second tier university!
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9-23-2009 @ 9:26PM
FJW said...
Our President addressed the United Nations with a speech
to ask all nations to cooperate in the global problems and show more brotherly love. I WONDER IF ANYBODY WAS LISTENING ?
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9-23-2009 @ 9:30PM
anaismorr said...
Obama's speach today was good however when you have nations such as Russia, France and China which are backing off in sanctioning Iran, Obama pretty much is handling the middle east situation unrealistically. I'm pretty sure Ahmadinejad couldn't give a toss about getting along with every nation.
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9-23-2009 @ 9:33PM
Doug said...
Most of these so called money managers are worthless. They talk a giid game, but as Warren Buffett says, "you find out who was swimming naked when the tide goes out". I had gains last year and will this year too. While the gains were less than previous years, I still made money, guess I'm smarter than a YALE guru
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9-23-2009 @ 9:34PM
MHAMMER49 said...
Remember, these are the same institutions that educated our President and most of his "Obama Brigade!" That may be why their Theories on Economics, Accounting, and Taxation seem so strange to the more common sense approach to Government.
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9-23-2009 @ 11:08PM
DC said...
The author seems like he has an ax to grind. Yale did poorly last year in investaments, as most of us did. They were not nearly as bad as Stanford nor Harvard. So why is he focuisng on Yale, who was in the middle of the pack for loses among the Ivy's? Also, this is really old news. Most of these institutions reported these loses long ago and their portfolios are currently rebounding nicely. Seems like there's something personal in the author's agenda.
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9-24-2009 @ 12:25AM
Costuro said...
He is focussing on Yale because the article about which most of us are presumably basing our comments is ABOUT YALE.
Remember?
9-23-2009 @ 9:55PM
ga7smi said...
pitty - skull and bones will have cut back on trying to control the world
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9-23-2009 @ 10:11PM
b said...
Maybe if they could get some foreign students, just like Barry S., they could survive.
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9-23-2009 @ 10:12PM
mark said...
ed, how do you figure these business schools are " liberal?" also how do you figure rich wall street assholes are liberal? your buddy gw and his daddy went to these schools. the rich wall street greedy bastards are ALL republican and THEY are the ones that just f'kd up our entire financial system. stop bitching about liberals when YOU and your repug buddies ARE THE PROBLEM!!!
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