Performance for Harvard, Yale Endowments in 2008

Harvard and Yale Endowments performance for 2008 was...

Harvard: 8.6%
Yale: 4.5%

Pretty impressive considering stocks were down more than 10% over the same time period. Below is a table of the five main asset classes over the past year and their total returns. The buy and hold allocation is the same allocation mentioned in my paper, namely a 20% allocation to the same five asset classes. GTAA is the timing model from the same paper. (Both are gross returns so lop off about 50 bps for management fees.)

Harvard: 8.6%
Yale: 4.5%

B&H: 9.79% (no rebalance), 6.44% monthly rebalance
GTAA: 13.92% (no rebalance), 11.15% (monthly rebalance)

US Stocks: -13.12%
Foreign Stocks: -10.15%
Bonds: 12.76%
Commodities: 75.99%
REITs: -16.55%

A simple, diversified allocation across low fee and tax efficient ETFs would have performed very nicely.

One could replicate these asset classes with the following ETFs:

SPDRs S&P 500 (SPY)
Vanguard FTSE All-World ex-US ETF (VEU)
Vanguard Total Bond Market ETF (BND)
Vanguard REIT Index VIPERs (VNQ)
DB Commodity Index Tracking Fund (DBC)

Comments

[Dame Daxx:]

Very impressive. But through what period is this? DBC is only up 9% YTD (it's down 25% since the end of June).

2008 Sep 20 02:46 PM

[contrarian@...:]

I don't believe their professed returns are verified by an independent auditor. I know both funds hold illiquid real estate and the same types of poor performing bond positions that every other fund manager is holding.. but theirs have obviously not been marked to market. I'm also certain that they have core investments in many of the U.S. large cap stocks that have been taking a beating this year. And, I doubt the the covenants of the Yale and Harvard endowments allows for massive shorting of the market.

I hate calling someone a liar...but, there seems to be smell of mendacity emanating from the Ivy covered offices of those funds.

2008 Sep 20 04:37 PM

[flamorte:]

I am a Yale SOM grad, and was fortunate enough to speak to David Swensen at length about the endowment fund and its strategy. He may not always be right, butr he is not mendacious in his representation of his fund's methodology.

First, remember that he is not promoting himself - others are. He is accountable to the board of the fund, and has no interest in publc opinion. True, he has written two books, but in the end, he has foregone compensation from the private sector that would be a double-digit multiple of what he is currently paid by Yale.

OMG

He makes no pretense about his asset allocation method - it may be that the people interpreting his method make their own assumptions. He is clear about the fact that his fund invests in illiquid assets that cannot be readily marked to marklet. He is clear that his method is not readily replciated by the means available to the "ordinary investor. However, he has deveoped some investment principles that have seem to have universal validity.

As for large cap U.S. stocks, well, it is public knowledge that the Yale endowment is invested in 10% U.S. equities, across the scale of market capitalization size.

No, the Yale endowment does not allow for short selling, and if you read Mr. Swensens book, you will find that, along with other famous invest managers, he would agree with the adage that "no one gets rich selling short". Whether it is market volatility, randomness or government intervention, in the long run, trying to time the market on short trades is a losing proposition for the small investor.

I wish it wasn't so (long/short trading is a lot of fun), but in the end, the fact that we are a nation in a growth stage (so far) make it so. I short successfully from time-to-time, but whatever Success I have had is ostly luckl. Maybe that will change as baby-boomers age and there is a generational net liquidation of the equity asset class, but that is speculation for now.

"Contrarian@coalmine", and others. read the man's own words before passing judgement. He is a better trader than you acknowledge.

2008 Sep 20 05:22 PM

[contrarian@...:]

Flamorte...You state, "he may not always be right, butr he is not mendacious in his representation of his fund's methodology"...but that's not my point, nor the point of this particular blog. If your mentor is not marking to market, then it's not exactly an apples to apples presentation of 2008 returns relative to the market or peer performance.

I'm up 50% this year if I don't calculate unrealized losses into my performance...but no one would, or should, bother blogging about that achievement.

And, by the way, I'm not going to buy the non-mercenary philosophy of Ivy League endowment managers...afterall, who is the new CEO of Pimco...

2008 Sep 20 06:01 PM

[Vladimir Se...:]

When you make a statement that one could replicate this performance using some ETFs, I'm assuming you've back-tested this. Could you please show us some more details on how you did it?

2008 Sep 20 08:14 PM

[glassbox:]

Faber, where did you get these performance numbers? I cannot seem to find it in the Yale investment office website.

2008 Sep 20 11:04 PM

[RememberCTR:]

contrarian@c
oalmine

Most illiquid mangers outside of endowments are audited. This is so the LP's have some assurance of the numbers. Endowments are also audited (they just don't have to report the audit to the public). There is no way the illiquid assets could be or should be marked to market. Shoot. Look at what happened last week and tell me know the exact value of any asset. FAS 157 has cracked down on unrealized gains and losses as much as it can. Don't be playa hatin the endowments just because they kill it EVERY YEAR. Yale, Harvard, Stanford, MIT, Princeton did not grow to be $15-40 Bn funds on donations. The donation numbers are public and they only account for <10% of the endowment growth.

2008 Sep 21 03:37 AM

[Michael Zhuang:]

coincidentally, I just wrote an article "All-weather portfolio: how Yale-Harvard endowments did that?"

investmentscientist.co...

2008 Sep 21 06:13 AM

[contrarian@...:]

Rememberctr...you state "The donation numbers are public and they only account for <10% of the endowment growth." If donations are counted as actual portfolio return on a year to year basis, then that's one-hell-of-a competitive edge for these endowments. Give me a 5-10% head start on the S&P 500 every year...and I'd be a legendary portfolio manager.

This is the year of the mark to market confessional for all money managers...there's no escaping. I'm too lazy to ascertain what equity positions Yale and Harvard hold long term [don't tell me that they have 100% yearly turnover], but I would bet AIG,LEH,GE,WM,MS,PFE,C... etc. are among them...not to mention their diversification into brutalized emerging markets.

I still have no hesitation questioning the veracity of the above claim that Harvard is beating the market by almost 20% this year, and is actually showing a positive return...minus in flows of cash donations.

Boasting exceptional returns when your internal audits are not made public is disingenuous at best. It's like saying "we use the same measuring stick when evaluating legacies as we do when accepting other students". How else do you explain George Bush's Yale (BA) and Harvard degrees (MBA).

2008 Sep 21 08:22 AM

[Emmdubbya:]

Contrarian, while I don't have a skin in this game, donation numbers which "only account for <10% of the endowment growth" imply a 10% boost on GROWTH, not on a percentage of the overall portfolio. Otherwise, your points are well noted.

2008 Sep 21 11:07 AM

[300mph:]

Let me make this very simple. With no accounting of how the stated returns were generated the numbers are meaningless. This isn't the first time that the Yale performance has been touted as some kind of superior investing genius, but as those above have stated, it's not verifiable and questionable accounting is suspected.

I personally found a very glaring example of this a few years ago when examining a year-end report published by a very large public employee retirement fund. They were also claiming some very large returns. It turns out that they were adding new contributions to the fund in the gain calculation. Outrageous.

2008 Sep 21 12:29 PM

[telecom guy:]

Investments in commodities explain why Harvard and Yale endowments have done well this year.

2008 Sep 21 01:09 PM

[Market Student:]

Contrarian...

A 50% YTD return is very impressive. Could you please publish your portfolio for us to view?

2008 Sep 21 08:55 PM

[casey00001:]

So these endowments are the excuse for not lowering tuition? Also if they are doing so well, why isn't tuition going down?

2008 Sep 21 10:34 PM

[RememberCTR:]

contrarian@coalmine
It sounds like you enjoy shooting from the hip. Look at the historical NACUBO data. Of the growth that the top endowments have seen in NAV since the late 1980's <10% is from donations. The endowments are impressive.

2008 Sep 21 11:52 PM

[RememberCTR:]

casey00001
Tuition is going down. The endowments pay out on average 5% each year to the schools. In the last year all the schools changed tuition and economic scholarship rules. For example Stanford eliminated tuition for families that earn less than $100,000 a year. Yes, tuition is rising, but the rich kids are the only ones paying that tuition. And who ever liked the rich kid?

2008 Sep 21 11:57 PM

[astudent:]

I am curious about the Harvard and yale's return stated here. They are impressive compared to my own dismayed return. I wonder from what period did they calculate the return? I hope this is not another story that encourages ordinary investors rushing back to the stock market again.

2008 Sep 22 12:17 AM

[Anonymous 2:]

I believe that many of the current bloggers would like to know the extent to which Harvard, Yale, Stanford, CALPERS, and University of North Calolina - as example - have - over the past 8 years since the turn of the century - allocated a percentage of their total assets to funds managed by sub advisors who use Alternative Investment Starategies as independent hedge fund managers.
Perhaps a spreadsheet showing the percent allocated to such managers by each institution during each of the past 8 years and the net after fee returns these managers returned - relative to the appropriate benchmark - to these endowmnt funds and to what extent they provided "value added' to the overall returns of the total endowment funds of each of these institutions required by law to provide "prudent man guidelines" to the management of such funds.
iI is my understandimg that most endowments of large universities such as the above and other non profit foundations and institutions have - over the past ten years added significant funds toward these AIS and that such allocations have in fact added substantial value to the overall returns of many of these institutions. Perhaps HFR might be able to shed some statistics.

2008 Sep 22 03:59 AM

[contrarian@...:]

RememberCTR...You state that "Yale, Harvard, Stanford, MIT, Princeton did not grow to be $15-40 Bn funds on donations"....you're correct, but don't discount the compounding effect of donations which span, in Harvard's case, the 138 years since the endowment's inception (ie. aprox. 1870); it's a stable source of annual liquidity from the most affluent alumni in the world. And, as to the question about whether I enjoy shooting from the hip, I can answer unabashedly, "Of course I do, Isn't that what the world of blogging is all about?"

Market Student, says that "A 50% YTD return is very impressive. Could you please publish your portfolio for us to view?". I would if I could, but what I was actually trying do was make a point, utilizing the literary techniques of sarcasm and gross exaggeration, to emphasize that a fund manager should not provide total returns without calculating in mark to market or unrealized losses. Otherwise, we're talking fictional returns.

2008 Sep 22 07:51 AM

[Daniel H:]

Had it not been for commodities, they wouldn't have had good numbers. They got lucky this year. As commodities starting pulling back in June, they luckily quickly managed to escape the year.
The volatility is going to go up as the commodities sector gets more volatile with time.

2008 Sep 23 10:55 AM

[Panda2:]

The allocation of Harvard and Yale to Alternative Investment Strategies is public information:

In 2008, Harvard allocated 11% to Private Equities and 18% to Hedge Funds... the latter number includes 5% leverage.

For FY 2009, Yale will be allocating 21% to Private Equities and 21% to Absolute Return strategies.

Both are difficult for retail investor to imitate ... if anyone has ideas, I'd like to hear 'em!

In addition, note that both have about 30% of total allocate to real assets, include real estate, commodities, and (to much lower extent) inflation-indexed bonds. Now, a good question is what did they do within those very broad asset classes???

Net/net, both have very large percentages of capital allocated outside your usual stocks and bonds...

2008 Oct 09 11:16 PM

[tenawy:]

Yale endowment does allow for short positions. In the talk below, David Swensen discusses examples of the various short positions the endowment had over the years. Listen to the last 10 minutes of the talk.

investmentscientist.co.../

On Sep 20 05:22 PM flamorte wrote:

> I am a Yale SOM grad, and was fortunate enough to speak to David
> Swensen at length about the endowment fund and its strategy. He may
> not always be right, butr he is not mendacious in his representation
> of his fund's methodology.
>
> First, remember that he is not promoting himself - others are. He
> is accountable to the board of the fund, and has no interest in publc
> opinion. True, he has written two books, but in the end, he has foregone
> compensation from the private sector that would be a double-digit
> multiple of what he is currently paid by Yale.
>
> OMG
>
> He makes no pretense about his asset allocation method - it may be
> that the people interpreting his method make their own assumptions.
> He is clear about the fact that his fund invests in illiquid assets
> that cannot be readily marked to marklet. He is clear that his method
> is not readily replciated by the means available to the "ordinary
> investor. However, he has deveoped some investment principles that
> have seem to have universal validity.
>
> As for large cap U.S. stocks, well, it is public knowledge that the
> Yale endowment is invested in 10% U.S. equities, across the scale
> of market capitalization size.
>
> No, the Yale endowment does not allow for short selling, and if you
> read Mr. Swensens book, you will find that, along with other famous
> invest managers, he would agree with the adage that "no one gets
> rich selling short". Whether it is market volatility, randomness
> or government intervention, in the long run, trying to time the market
> on short trades is a losing proposition for the small investor.
>
>
> I wish it wasn't so (long/short trading is a lot of fun), but in
> the end, the fact that we are a nation in a growth stage (so far)
> make it so. I short successfully from time-to-time, but whatever
> Success I have had is ostly luckl. Maybe that will change as baby-boomers
> age and there is a generational net liquidation of the equity asset
> class, but that is speculation for now.
>
> "Contrarian@coalmine", and others. read the man's own words before
> passing judgement. He is a better trader than you acknowledge. <br/>
>

May 09 11:44 PM