New York : Yale University, whose endowment is the top performer in the US, is cutting its target allocations in hedge funds to allow for bigger stakes in private equity and real estate, the asset classes that hurt the fund last year.
Yale boosted the fund's private equity target to 26 per cent from 21 per cent and its real assets allocation, which includes real estate and commodities, to 37 per cent from 29 per cent, at its June 2009 investment committee meeting, according to a report released yesterday. The report said Yale, in New Haven, Connecticut, anticipated capital gains in those asset classes.
The university, the second-richest after Harvard University, generated an average annual return of 12 per cent in the decade through June, beating Harvard's 8.9 per cent gain.
David Swensen, Yale's investment chief, was a pioneer in outperforming a conventional portfolio of stocks and bonds by loading up on assets such as private equity, real estate and commodities and is sticking to that model even after investments shrunk by a quarter in the fiscal year ending in June.
"Alternative assets, by their very nature, tend to be less efficiently priced than traditional marketable securities, providing an opportunity to exploit market inefficiencies through active management," the report said.
Over the past decade, Yale's private equity investments were the top performing assets, gaining 26 per cent each year, while real assets returned 14 per cent annually, the report said. Private equity investments have gained 30 per cent a year since the school started investing in them in 1973, the report said. To make room for more private equity and real asset stakes, the Yale investment committee approved a 6 per cent decrease in its hedge fund allocation to 15 per cent and a 5 per cent decrease in foreign equities to 10 per cent.
