Yale Case

15625 Words63 Pages
9-812-062 OCTOBER 18, 2011 JOSH LERNER ANN LEAMON Yale University Investments Office: February 2011 “…anointing winners and losers on the basis of 12 months’ worth of performance is silly in the context of portfolios that are being managed with incredibly long time horizons.” — David F. Swensen, Chief Investment Officer, Yale University1 On a February afternoon in 2011, David Swensen, Chief Investment Officer of Yale University, stared out his window at the snow blanketing the city of New Haven. He was considering the roster for the Investments Office’s 2011 softball team, which would be defending its first-ever Yale University championship. It was nice to imagine the warmth of summer. Swensen and the Investments Office had…show more content…
The creation of a formal endowment for Yale was triggered by the 1818 disestablishment of Congregationalism as Connecticut’s state religion. Students and alumni alike demanded that the school respond by establishing a divinity school to offer theological instruction. To fund this effort, numerous alumni made large gifts, the first in a series of successful fund drives. While Yale used many of these donations to buy land and construct buildings, other funds were invested in corporate and railroad bonds, as well as equities. By the century’s end, the endowment had reached $5 million. The growth of the endowment accelerated during the first three decades of the twentieth century, due both to several enormous bequests and to aggressive investments in equities, which represented well over half the endowment’s portfolio during the Roaring Twenties. In 1930, equities were 42% of the Yale endowment; the average university had only 11.5%.3 Yale avoided severe erosion of its endowment during the Great Depression in the 1930s, however, because many recent bequests were kept in cash or Treasuries rather than being invested in equities. In the late 1930s, Treasurer Laurence Tighe decided that the share of equities in Yale’s portfolio should be dramatically reduced. Tighe argued that higher taxes were likely to expropriate any corporate profits that equity holders would otherwise receive even if a recovery did occur. He concluded that bonds would
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