Spoiler alert: The Yale model is not broken—at least not at Yale.
The alternatives-driven approach has worked spectacularly well for the $25.4 billion Ivy League
university endowment and its longtime CIO David Swensen, becoming the stuff of legend and investment theory.
In an origin story that is now canon, the endowment helmed by Swensen moved in the mid-80s
from a more traditional mix of bonds and a few equities into carefully selected alternative investments—
hedge funds, private equity, and venture capital—using external managers to capture the so-called
illiquidity premium. This added $7 billion of value and earned a 12.9% return per annum over the
past 30 years. From providing 10% of the university’s annual budget in 1985, the endowment now
covers 33% of Yale’s costs. Its reach has extended beyond the New Haven campus as Swensen protégés
went on to implement the model at universities like Bowdoin, MIT, Princeton and Wesleyan. Swensen
himself would go on to literally write the book on institutional investing—publishing Pioneering Portfolio
Management in 2000. That, some say, is when the Yale model really went mainstream—and, for better
or for worse, became synonymous with the endowment model, inspiring many to attempt to replicate
the returns of Swensen, Yale’s senior director Dean Takahashi, and their acolytes.
YA L EModel
Declining returns and current market conditions
have some questioning the infallibility of the
endowment model—pioneered and perfected by
David Swensen—and looking to reinvent.