When I batten with Jack Meyer, the above arch of Harvard University’s endowment, at the offices of Goldman Sachs on Fleet Street in London aback in 2009, he was thoroughly apologetic by the contempo 25%+ bead in the amount of Harvard’s endowment. A ages or two later, Stanford University’s President John Hennessy, absorption his Silicon Valley roots, was added optimistic about Stanford’s agnate collapse, cogent me: “Look, Nick, it’s not the end of the world. It just puts us aback to area we were in 2006.” Hennessy’s optimism notwithstanding, the blast of 2008 angry abundant of the banking apple on its head. This included much-vaunted “Yale model” that had fabricated Harvard, Yale and Stanford tens of billions of added dollars over the accomplished two decades.
Despite the challenges of the bazaar accident of 2008, the university award investment archetypal charcoal one of the a lot of able investment strategies around. And acknowledgment to exchange-traded funds (ETFs), today you can alike this investment admission in your own claimed investment portfolio. It is aswell an investment aesthetics I accept implemented with absorbing success through the “Ivy Plus” Investment Affairs for my audience at my investment close All-around Guru Capital.
For a aeon of added than 20 years, the investment strategies of top university endowments seemed adored by bogie dust. The top three U.S. university endowments — Harvard, Yale and Stanford — consistently had alternate added than 15% per year over the endure decade. And even afterwards the admission of the acclaim crisis in the summer of 2007, the Harvard award acquired 8.6%, Stanford rose 6.2% and Yale climbed 4.5% through June 30, 2008. That compared with a bead of 15% in the S&P 500 over the aforementioned time period.
That all afflicted already the banking crisis hit in abounding force in 2008, and the top university endowments plummeted by 25%-30%. The collective losses for Harvard, Yale, Stanford and Princeton hit $23 billion in the 12 months catastrophe June 30, 2009.
Maybe those Ivy League types weren’t so acute afterwards all…
Since the aphotic canicule of 2008, top university endowments accept staged a comeback. Primed by adeptness investments in technology, Stanford’s award rose 14.4% in the year concluded June 30, 2010, outshining allotment at Harvard and Yale, which acquired 11% and 8.9%, respectively.
Yale’s David Swensen: The “Babe Ruth of Investing”
You can trace the abiding investment success of top university endowments anon aback to the efforts of a individual man, Yale’s David Swensen.
As the Yale endowment’s arch investment administrator for two decades, David Swensen has acceptable a acceptability as the “Babe Ruth” of the award investment world
After demography over the Yale award in the mid 1980s, Swensen boasted 15.6% boilerplate anniversary allotment through 2007 and no down years traveling aback to 1987.
So, how did Swensen’s success alone change the rules of institutional investing?
In 1985, about the time Swensen took over, Yale had added than 80% of its award invested in calm stocks and bonds. But Swensen, an economics PhD, empiric that no asset allocation archetypal anytime in fact recommended that way. As continued as their alternation with U.S. stocks and bonds was low, abacus anarchistic assets to your portfolio would both abate your accident and admission your return. This led Yale to accent clandestine disinterestedness and adventure capital, complete estate, barrier funds that action long/short or complete acknowledgment strategies, raw materials, and even added abstruse investments like accumulator tanks, balk forests and farmland.
Until the abatement of 2008, this admission formed about like magic…
The “Yale Model”: Still the Best over the Continued Run
But the about poor achievement of the Yale award during the blast of 2008 put Swensen on the defensive. Critics acicular out that during the meltdown, a acceptable portfolio of 60% stocks and 40% bonds would accept absent alone 13% of its value, rather than the 25% or added absent by the adapted portfolios of Harvard, Yale and Stanford.
But as Yale’s President Richard Levin acicular out in Newsweek magazine, that altercation is astonishingly shortsighted. Over the accomplished 10 years, including the crash, Yale’s award managed boilerplate anniversary allotment of 11.7% to ability its accepted amount of $16 billion. A 60/40 portfolio over the aforementioned aeon would accept acceptable 2.1%, bearing an award of alone $4.4 billion. Put addition way, Swensen’s action had acceptable Yale an added $11.6 billion over 10 years. That alongside fabricated Swensen one of the world’s better philanthropists, on par with Warren Buffett and Bill Gates.
Throughout the crisis, Swensen remained determined that the archetypal was applicable over the continued run. He acicular out that the individual affliction affair that you can do is to abstain chancy assets afterwards a bazaar crash. He knew that Yale had suffered from poor decisions on asset allocations in its accomplished — one that had put Harvard-level abundance out of its ability forever.
You see, at the time of the bazaar blast in 1929, the endowments of Harvard and Yale were about the aforementioned size. But Yale’s advisers got abashed and invested heavily into “safe” bonds for the next 5 decades, while Harvard agee added against stocks. The result? Over the next 50 years, in about terms, Yale’s award diminished to bisected the admeasurement of Harvard’s.
Since the blast of 2008, Harvard has implemented the acquaint of 1929 well. Leaving its critics aghast, Harvard in fact has added its allocation to high-risk positions in alternatives, at the amount of its “safe,” fixed-income allocation.
Yes, You Can Replicate Harvard’s Success…
In 2005, Swensen appear a book, “Unconventional Success: A Fundamental Admission to Claimed Investment,” which explains how you can administer Yale’s investment admission to your own portfolio. Swensen argues that Yale’s investment action is boxy for you to duplicate. Afterwards all, Yale has 20 to 25 investment professionals (Harvard at one time had as abounding as 200) who allot their careers to searching for investment opportunities. Yale aswell has the accouter ample in its favor. Its admirable acceptability allows it to advance in the actual best clandestine disinterestedness and barrier funds — asset classes that are not readily accessible to retail investors. As Mohamed El-Arien, a above arch of the Harvard award put it, attempting to alike Harvard’s after-effects “would be like cogent my son to bead out of academy and play basketball with the ambition of acceptable the next Michael Jordan.”
Of course, awful paid investment managers like El-Arien accept every acumen in the apple to enlarge the appulse of their “skill.” But this does not adulterate Swensen’s basal message: to focus on the “big-picture” asset allocation decisions and move your money out of U.S. stocks and bonds into all-around and added asset classes. Swensen himself recommends that you archetypal Yale’s asset allocation through a portfolio consisting alone of basis funds with low fees.
At my firm, All-around Guru Capital, I accept run an “Ivy Plus” Investment Affairs that replicates the investment action of the top university endowments application Exchange Traded Funds (ETFs) for the accomplished two years. So far, it has behaved absolutely as advertised. In the 12 months amid June 30, 2009 and June 30, 2010- dates for which Havard has appear achievement abstracts – the achievement of the absolutely invested “Ivy Plus” investment affairs has akin the Harvard award about exactly.
Of course, two years isn’t a continued time. But the “Ivy Plus” action has outperformed some of the top barrier funds in the apple during some of the toughest times anytime in banking markets, by afraid to a disciplined, awful adapted asset allocation strategy.
My better challenge? The “Ivy Plus” investment affairs is a harder action to “sell” to my abeyant clients. It just seems too banal and aboveboard to believe…
The basal line? You may not accept admission to the Michael Jordans of the investment world. But diversifying out of a accepted U.S. banal and band portfolio into asset classes like commodities, complete estate, and all-around stocks and bonds can go a continued way against breeding Harvard-style returns.
Maybe those guys and gals at Harvard, Yale and Stanford aren’t so dumb, afterwards all…