Taking Portfolio Lessons from Yale's David Swensen

by: Roger Nusbaum January 28, 2008    

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I stumbled across this link via Seeking Alpha about David Swensen with a specific spelling out of his allocation for the Yale endowment, and also a proposed allocation for retail investors that would presumably allow do-it-yourselfers to get close.


The Yale Endowment is as follows;

Real Assets 27%
Absolute Return 25%
Private Equity 17%
Foreign Equity 15%
Domestic Equity 12%
Fixed Income 4%

The Retail Mix;

Domestic Equity 30%
Foreign Developed Equity 15%
Emerging Market 5%
Real Estate 20%
Short Term Treasuries 15%
TIPS 15%

Before I go on, I can't vouch for the numbers in the article. It looks like the endowment numbers add up to 100, while in every other article I can recall about the Yale endowment, the allocation adds up to more than 100 (meaning the fund is leveraged), but whatever.

I'm not too focused on the exact numbers, so much as the concept as a means to try to learn. All of the categories in the Yale Endowment are accessible in retail products. Real assets obviously can include any or all of the commodity products (all those ETFs and ETNs) that exist.

There are plenty of absolute return, open end funds, some better than others. If you do a search you'll find articles talking about the various long/short funds that have done poorly during recent market panics, but there are some that have done very well and do add value in this context.

Private equity is a little tricky. The ETFs do not cut it. The holdings all blend together in such a way that the correlations of those ETFs are pretty high to the S&P 500, much higher than the components of the funds. There are various pools of capital that are listed on the exchanges that create the effect. Obviously anyone interested in this area needs to decide for themselves whether the space makes sense for them, and then whether any of the choices are suitable, but the space is accessible with choices.

The other three categories are what we are all used to investing, and so there doesn't need to be too much discussion about them.

There could be reasonable debate as to how appropriate this concept is for do-it-yourselfers, but then the point is not that anyone should run out and implement this on Monday. Though it is safe to say that Swensen knows more than all of us, and he didn't assemble the portfolio to look that way (from whenever those were the numbers) because he thought it was a bad idea.

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This article has 2 comments:

  •  
    Feb 02 07:36 PM
    For the private equity, right or wrong, i have been using BCO's and specialize managers (what i call them) For example, for my pricate equity section in the portfolio, i am holding ALD, ACAS, MKL, and recently thew in an ETF using the PFP. All are about .5 - 1% of position size. i have not added Blackstone or GLAD yet, still doing research.

    I welcome others ideas and thoughts. I always welcome ideas.
    Reply | Link to Comment
  •  
    Oct 20 10:41 PM
    Here is another study of David Swensen's asset allocation for Yale Endowment.

    investmentscientist.co.../
    Reply | Link to Comment
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