Yale boosts PE allocation in year of heavy losses

Yale University increased its allocation to private equity and real assets last year amid a market crisis that led to the endowment losing a total of $5.6 billion for the year.

The endowment, with assets totaling $16.3 billion as of 30 June, 2009, increased its target allocation to private equity to 26 percent from 21 percent in 2008, and its target to real assets to 37 percent from 29 percent in 2008. To make room for the new targets, Yale reduced allocations to hedge funds, foreign equities and US stocks.

Since inception, private equity investments have generated a 30.4 percent annualised return to the university. Yale endowment

The endowment's actual allocation to private equity is 24.3 percent, and 32 percent to real assets.

Yale sustained heavy losses in the two asset classes last year. Private equity lost 24.3 percent in 2009, while real assets dropped 33.9 percent to become the worst performing asset class of the year.

“The heavy allocation to non-traditional asset classes stems from their return potential and diversifying power,” the endowment said in its 2009 annual summary. “Private equity offers extremely attractive long-term risk-adjusted return characteristics, stemming from the university’s strong stable of value-added managers that exploit market inefficiencies.”

Yale expressed its support of its private equity programme in the summary.

“Yale’s private equity programme, one of the first of its kind, is regarded as among the best in the institutional investment community,” the endowment said. “Since inception, private equity investments have generated a 30.4 percent annualised return to the university.”