I previously outlined why smart investors should look to the how the world universities manage their large endowments - What kind of investments would God make?
The largest prestigious university endowments are Godlike in their investing capabilities as their investment horizon is forever, educational institutions are created for the very very long term. They can select any investment manager in the world as it could be the making of a firm if other investors feel they’re co-investing with the best.
Ha, if you thought Stanford admission (4.3% acceptance) was a rat race you should see what extent investment managers will go to be accepted as an university’s investment manager.
The university endowments have access to the smartest people and research in the world. Luckily for us mere mortals, because they are set up for the public good they do disclose their strategies and returns to some extent and also willingly discuss how they survived and recovered from the 2008 crash.
There’s a lot to cover and learn from so I’m going to cover this topic in two posts, but here's some takeaways:
- they differ in their approaches in terms of whether they use outside managers, directly invest themselves or a combination.
- they all hurt badly in the 2008 crisis and have become much more sophisticated about setting aside buffers and understanding risk.
- they’re are paying increasing attention to alternative assets and defining investments by risk rather than the usual “equities/ bonds” type divisions.
Now mostly outsourced - that is the Harvard team spends time picking investment managers instead of picking investments. They did badly in 2015/ 16 and after the swapping of CEO’s haven’t disclosed their latest asset allocation. Even the best struggle at times!
Now run by an alum of the Yale Investments Office here’s their 2017 allocation:
Headed by the great David Swensen who revolutionised endowment investing by professionalising investing within universities. Yale remains the leader in long term investment thinking. Swensen has written a book outlining his advice to individual investors. Unconventional Success: A Fundamental Approach to Personal Investment US UK.
Next time I’ll cover what they invest in more detail.