Thursday, April 06, 2006

How a Multibillionaire Invests - Lessons from the Yale Endowment

The Yale Endowment is one of the most successful long-term investors. Last year (2005) their return was over 22%. And they have a long-term 20 year track record of over 16% in annual returns. They achieved these remarkable returns by careful asset allocation strategies. Anyone interested in asset allocation should read the Yale Endowment Report, which reads like a blueprint of their asset allocation strategy. It's interesting to see their historical graphs on how their asset allocation strategy has changed over time from being U.S.-centric 20 years ago to being much more diversified.

Some of the things they favor include hard assets, small caps, and value investing. They have a surprisingly small amount devoted to fixed income. They also tend to like active management and trying to beat benchmark indices.

Their current target allocations are:
Domestic Equity 14%
Fixed Income 5%
Absolute Return 25% (hedging strategies)
Foreign Equity 14%
Private Equity 17% (VC and leveraged buyouts)
Real Assets 25% (Real estate, oil, gas, timber, commodities)
Cash 0%


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