Comments on: What Can We Learn from Yale Endowment’s 28% Annual Return?

By: Retirement Investment Advisor

Retirement Investment Advisor — Fri, 17 Oct 2008 03:52:47 +0000

There is a more up-to-date study of both Harvard and Yale’s investment approaches and their historical returns:

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

By: Ric

Ric — Tue, 06 Nov 2007 00:39:43 +0000

Your pie chart is materially wrong. Not only does it not total out to 100, but the real estate portion should be titled “Real Assets.” This is misleading as the majority of that sector position is primarily in commodities not real estate.

By: Super Saver

Super Saver — Sun, 07 Oct 2007 18:15:34 +0000

Sun,

Great post.

Recently, I attended a presentation about endowment investment management. I saw graphs sharing the same information. I concluded that there are, as there always have been, inefficiencies in the market (perhaps not the US stock market which can be exploited by the savvy investor. However, it involves having the right knowledge, good analysis, and doing a lot of hard work, which the average investor can’t do.

For example,I would guess that there are endowment funds buying up “sub-prime debt” for literally pennies on the dollar. Even if it only rises to 25 cents on the dollar, they will have made lots of money. Real estate is also another area for potential great gains, if one is sufficiently capitalized.

This is truly the time of opportunity where one can find underpriced investments A good cautious approach is to not risk too much and turn the investment into a gamble. Perhaps no more than 5-10% of one’s total investments.

By: Sun

Sun — Sat, 06 Oct 2007 03:52:20 +0000

While I agree with you that the biggest difference between the personal investment and the endowment is the investment time frame, the goal should be the same for the two: maximizing the return. The endowment got the extraordinary return by diversifying the investments and taking more risk. That’s the concept we can use, even though we don’t have that long time frame. Investing in a total stock market fund and a total bond fund is the simplest strategy, but we may not get the return that we hope we can get.

By: MossySF

MossySF — Sat, 06 Oct 2007 00:13:39 +0000

We can look to the TIAA-CREF Real Estate Annuity account for clues. It holds direct ownership in property and does full appraisals annually with estimated appraisals quarterly. I’m guessing because this fund holds so many properties, they have to do batches of appraisals every week. So if property prices go up/down, they can only update the prices for 1/50th or 1/100th of total holdings. This creates the illusion of lower volatility because even if the entire market went down 2.5% that day, only the 1/50th reappraised would impact the daily NAV.

One more major advantage Swenson has that we cannot reproduce — as an endowment, all transactions are tax free. So Swenson can rebalance to his heart’s delight often rebalancing daily. No taxes — enough money clout to reduce transaction expenses.