Yale Daily News

Of course, commodities are down roughly 30% since June 30. I am hoping that Swensen's smaller FY increase vis-a-vis Harvard translates into smaller losses on the downside. Not that I wish Harvard ill; I just wish Yale better!

Commodities fall-off should have mixed implications: bad for the endowment but, given the pace of New Haven construction, perhaps good for the town and the university (steel prices are un-be-LIEVE-able right now).

Ceteris parabis, I trust Swensen to have foreseen the bursting of the commodity bubble earlier and to better effect than the el-Erian (or Kaplan--given that Jane only started in July, I wonder whether she had time to recognize and execute any strategy... guess we'll have to wait a year!).

Boola, boola!

It appears that Yale is as "Harvard-centric" as ever.

It's only a relevant comparison because Yale beats Harvard almost every year in this category. For them not to, is a sign of something interesting happening in the market. Probably means that Harvard's endowment will plummet in the next FY while Yale's will continue to rise.

1. David Swensen is God. Deservedly the highest paid Yale employee.
2. Yeah, stop always using Harvard as your benchmark.

Not sure if your analysis is right. The $23 billion figure in Pres. Levin's letter appears to be net of the approx. $850 million in endowment spending this year. That would lead to a 5-6% return. We'll see soon, I guess.

Figures they needed a Yale grad to beat out returns!

It's not a good idea to focus on the putative modesty of these results. Yale's endowment managers are reported to be ultraconservative in recording gains, especially with regard to the non-liquid assets to which much of the endowment is devoted. With so much turbulence and uncertainty now in the markets, such ultraconservative reporting policies will normally reduce reported gains. University endowment management is a very long term game, and it would be very disturbing to the functioning and psychology of an institution to be later obligated to give up gains optimistically recorded. It is possible that some institutions reporting better results than Yale's this year will find themselves writing another, more bitter, chapter later in the economic cycle.

Further, these results date back to the end of the last fiscal year. Because the financial turmoil now racking the markets cranked up quite a bit just after that date, the "snapshot" implied by formal returns for 2007-08 give far less information about the true current state of any endowment than is normally the case. Yale's endowment is reported to be famously hedged against loss. Other endowmentss, perhaps not so much so. We'll see.

It is not so much a "Harvard versus Yale" thing as it is a Harvard-style management versus Yale-style, and the comparison is worth making.

Harvard typically hires folks into Harvard Mgmt Co who, after a couple of years at their "low" pay, quit and start an outside firm which HMC can then hire (and pay "real" salaries). Harvard hires LOTS of outside managers.

Yale has one guy, paid a relative pittance (for which he must suffer the usual sophomoric criticism regarding unfair pay), plays things VERY close to the vest, and does most everything in-house.

Harvard and Yale offer two models to other large entities, i.e., endowments, foundations, pensions, etc., thus it is worth comparing styles--and results--of these two behemoths in order to better gauge which offers advantages.

#7's comments are worth thinking about; thanks!

The bottom line:

Apparently, after the return on investment, expenditures, and new gifts, the net value of the endowment increased by $400 million - from $22.5 billion to $22.9 billion in FY 2008.

Yale's spending--$3 billion over the last ten years, roughly equivalent to Dartmouth's *entire* endowment--has *transformed* New Haven.

That spending--and the current and future construction (and, hence, jobs) it supports--is almost entirely dependent upon the endowment.

The effects, both trickle-down and attractive (whereby other business feel comfortable coming to New Haven, knowing that it is stabilized and even getting better) are a tremendous benefit to all residents of New Haven, whether town or gown.

The equity and bond markets have benefited from a long period of low inflation, but ongoing and massive central bank liquidity injections point to a far less benign environment of elevated inflation ahead.

Research by Agcapita Farmland Investment Partnership (Calgary, Canada based agriculture private equity firm) shows investors must be prepared to rotate into asset classes with different characteristics.

During the last commodity bull market & high inflation period in the 1970’s, equities materially underperformed farmland.
- Western Canadian farmland went from around $100/acre to $550/acre (550% total return and 176% in inflation adjusted terms);
- Cash held in a money market account barely kept ahead of inflation (6% inflation adjusted return); and the
- S&P 500 index returned less than 2% per year (a loss of almost 50% in inflation in adjusted terms)

I believe the world is still in the early stages of this current commodity bull market. When agriculture commodities prices are compared against their previous inflation adjusted highs they are significantly discounted implying scope for further increases:
 Corn is US$ 5/bushel currently compared to US$16/bushel in 1974,
 Wheat is US$ 7/bushel currently compared to US$27/bushel in 1974
 Canadian farmland is C$ 660/acre currently compared to C$1,100/acre in 1981

In the last ten years, Yale endowment outperformed Harvard most of the time. This is nothing to be ashamed of getting a lower return than Harvard. Harvard allocated 16% to commodities, I am it is taking a big hit now.

http://investmentscientist.com/2008/09/21/all-weather-portfolio-investing-like-yale-harvard-endowments/