At the start of December, Harvard announced that its endowment - the largest in the US - was down 22% since the start of the 3rd quarter. This afternoon, Yale one-upped Harvard on the downside by announcing its endowment was down roughly 25% over the same time frame. Yale's endowment manager, David Swensen, revolutionized endowment investing by expanding asset allocation into non-traditional assets such as hedge funds, private equity, real estate, commodities, etc. His investment strategy of setting strict asset allocation parameters and constantly rebalancing to keep weightings inline has become widely followed in recent years.
Over the long run, this strategy has been shown to offer the best risk adjusted returns, but recent market turmoil has caused asset classes that have traditionally been negatively correlated to move in lockstep with each other on the downside. And hedge funds, big real estate, and private equity, which were once huge benefits for endowments since they had the capital to access them, have quickly become somewhat of an achilles' heel:
From June 30 through Oct. 31, Dr. Levin said the endowment's marketable securities had fallen 13.4%. But the Yale endowment is heavily invested in illiquid securities, such as private equity and real estate. The 25% decline takes into account an estimate of those securities' declines as well.
During the last bear market ('00-'02), the Yale and Harvard endowments held up extremely well because of their alternative investments. This time around, they've taken their lumps along with almost everyone else.
50 cents was a lot of money back in 1922(36 dollars in 2008)
Posted by: dj | December 17, 2008 at 08:53 AM