budget deficits, cricketdiane, economic crisis, education budget cuts, states' use of education money, tuition hikes, University and college budget cuts and tuition hikes, US departments and agencies of education
Here is how Yale’s endowment and likely many other educational resource pools were handled which caused the university, college, school system and state budgets’ deficits and budget cuts now – (my note, cricketdiane)
Totaling $22.9 billion on June 30, 2008, the Yale Endowment contains
thousands of funds with a variety of designated purposes and restrictions.
Approximately four-fifths of funds constitute true endowment, gifts
restricted by donors to provide long-term funding for designated purposes.
The remaining one-fifth represent quasi-endowment, monies that the Yale
Corporation chooses to invest and treat as endowment.
Donors frequently specify a particular purpose for gifts, creating
endowments to fund professorships, teaching, and lectureships (23 percent),
scholarships, fellowships, and prizes (18 percent), maintenance
(4 percent), books (3 percent) and miscellaneous specific purposes (26
percent). Twenty-six percent of funds are unrestricted. Twenty-five percent
of the Endowment benefits the overall University, with remaining
funds focused on specific units, including the Faculty of Arts and Sciences
(38 percent), the professional schools (23 percent), the library (8 percent),
and other entities (6 percent).
Although distinct in purpose or restriction, Endowment funds are
commingled in an investment pool and tracked with unit accounting
much like a large mutual fund. Endowment gifts of cash, securities, or
property are valued and exchanged for units that represent a claim on a
portion of the whole investment portfolio.
In fiscal 2008, the Endowment provided $850 million, or 37 percent,
of the University’s $2,280.2 million operating income. Other major
sources of revenues were grants and contracts of $561 million (25 percent),
medical services of $373 million (16 percent), net tuition, room,
and board of $246 million (11 percent), other income and transfers of
$105 million (5 percent), gifts of $92 million (4 percent), and other
investment income of $54 million (2 percent).
Because investment management involves as much art as science,
qualitative considerations play an extremely important role in portfolio
decisions. The definition of an asset class is quite subjective, requiring
precise distinctions where none exist. Returns and correlations are di∞-
cult to forecast. Historical data provide a guide, but must be modified to
recognize structural changes and compensate for anomalous periods.
Quantitative measures have difficulty incorporating factors such as market
liquidity or the influence of significant, low-probability events. In
spite of the operational challenges, the rigor required in conducting
mean-variance analysis brings an important perspective to the asset
June 2008 June 2008
Asset Class Actual Target
Absolute Return 25.1% 21.0%
Domestic Equity 10.1 10.0
Fixed Income 4.0 4.0
Foreign Equity 15.2 15.0
Private Equity 20.2 21.0
Real Assets 29.3 29.0
Cash -3.9 0.0
The target mix of assets produces an expected real (after inflation) longterm
growth rate of 6.4 percent with a risk (standard deviation of
returns) of 12.7 percent. Because actual holdings di≠er from target levels,
the actual allocation produces a portfolio expected to grow at 6.5 percent
with a risk of 12.8 percent. The University’s measure of inflation is based
on a basket of goods and services specific to higher education that tends
to exceed the Consumer Price Index by approximately one percentage
At its June 2008 meeting, Yale’s Investment Committee adopted
a number of changes in the University’s policy portfolio allocations. The
Committee approved an increase in the private equity target from 19 percent
to 21 percent to accommodate organic growth in private equity exposure
as a percentage of the Endowment. For similar reasons, the University
increased the real assets allocation from 28 percent to 29 percent.
The increases in the illiquid asset classes were funded by a 2 percentage
point decrease in the absolute return target allocation to 21 percent, and
a 1 percentage point decrease in the domestic equity target allocation to
The need to provide resources for current operations as well as
preserve purchasing power of assets dictates investing for high returns,
causing the Endowment to be biased toward equity. In addition, the
University’s vulnerability to inflation further directs the Endowment away
from fixed income and toward equity instruments. Hence, 96 percent of
the Endowment is targeted for investment in assets expected to produce
equity-like returns, through holdings of domestic and international securities,
real assets, and private equity.
Over the past two decades, Yale reduced dramatically the
Endowment’s dependence on domestic marketable securities by reallocating
assets to nontraditional asset classes. In 1988, nearly 75 percent of the
Endowment was committed to U.S. stocks, bonds, and cash. Today, target
allocations call for 14 percent in domestic marketable securities, while
the diversifying assets of foreign equity, private equity, absolute return
strategies, and real assets dominate the Endowment, representing 86 percent
of the target portfolio.
The heavy allocation to nontraditional asset classes stems from
their return potential and diversifying power. Today’s actual and target
portfolios have significantly higher expected returns and lower volatility
than the 1988 portfolio. Alternative assets, by their very nature, tend to be
less e∞ciently priced than traditional marketable securities, providing an
opportunity to exploit market ine∞ciencies through active management.
The Endowment’s long time horizon is well suited to exploiting illiquid,
less e∞cient markets such as venture capital, leveraged buyouts, oil and
gas, timber, and real estate.
(And on down in this document, there is more rationalization for risky plays using the endowments money which has resulted in losses which will not show up yet – )
of the portfolio is dedicated to event-driven strategies, which rely on a
very specific corporate event, such as a merger, spin-o≠, or bankruptcy
restructuring to achieve a target price. The other half of the portfolio contains
value-driven strategies, which involve hedged positions in assets or
securities that diverge from underlying economic value.
Despite recognizing that the U.S. equity market is highly e∞cient,
Yale elects to pursue active management strategies, aspiring to outperform
the market index by a few percentage points annually. Because
superior stock selection provides the most consistent and reliable opportunity
for generating excess returns, the University favors managers with
exceptional bottom-up fundamental research capabilities. Managers
searching for out-of-favor securities often find stocks that are cheap in
relation to current fundamental measures such as book value, earnings,
or cash flow. Recognizing the difficulty of outperforming the market on a
consistent basis, Yale searches for managers with high integrity, sound
investment philosophies, strong track records, superior organizations,
and sustainable competitive advantages.
My Note –
Given the truth of the current endowment losses over $3 Billion dollars, they need to fire this group and start over.
And how much are they paying them to muck it up this badly? Even I could do that job and get those results with nothing going for me in intelligent application of skills and knowledge . . .