Yale University Investment Office 2006

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The Case is about the decision of the Yale Investments Office whether to continue to allocate the bulk of the university 's endowment to illiquid investments--hedge funds, private equity, real estate, and so forth. Important is to consider the risks and benefits of a different asset allocation strategy. Before the choice between different subclasses, e.g., between venture capital and leveraged buyout funds would be analyzed it is advantageous to get first background information. Effective management of a university endowment requires balancing fundamentally competing objectives. On the one hand, the University requires immediate proceeds to support the current generation of scholars. On the other hand, investment managers must
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Because rarely asset management business had good incentive alignments built into typical client-manager relationships. It is necessary for Investment Office to construct good innovative relationships and fee structures with various external managers to consist the manager interests with Yale’s.
Yale´s Investment Committee annually reviewed its endowment portfolio. For the choice between different asset classes we will consider the actual allocations in 2006.
Domestic Equity Foreign equity Bonds Cash Real Assets Private Equity Abs. Return Others
Asset Allocation of Yale Endowment 2005: 14,1% 2006* 12,0% 2005: 13.7 2006: 15.0 2005: 4.9 2006:4.0 2005:1.92006: 0.0 2005: 25.02006:27.0 2005:14.82006:17.0 2005:25.72006:25.0 Asset Allocation of large Universities Endowments 2005:24,5% 2005:17.4 2005:16.2 20051.1: 2005:10.7 2005:9.3 2005:19.9 2005:0.8
Asset Allocation of all Universities Endowments 2005:45,8% 2005:12.7 2005:21.5 20053.5: 2005:3.9 2005:2.4 2005:8.7 2005:1.4
Trend (exp.)* down up down down up up up down
*2006 (current Target allocation)*Considered only the last 2-3 years
The consideration of the expected returns and risks from its current allocation and compared them with those of past Yale allocations and the current mean allocation of other universities reflected the need of university to diversify its holdings.In August 2006, Swensen and Takahashi believed that they probably wanted to
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