The $29.4 billion Yale University endowment exceeded its 6.5 percent natural resources 2018 target, reporting an allocation of 7 percent as of June 2018, according to its 2018 report. However, the endowment had a higher actual allocation in 2017, 7.8 percent.
Equity investments in natural resources include oil and gas, timberland, and agriculture.
The combination of quantitative analysis and market judgment employed by Yale produces the following portfolio:
Yale’s natural resources portfolio produced an annualized return of 1.7 percent over the past decade, surpassing its composite passive benchmark by 1.5 percent per year, but underperforming the Cambridge Associates natural resources manager pool by 2.3 percent per year.
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 than the 1988 portfolio with similar volatility. 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 endowment’s long time horizon is well suited to exploit illiquid, less efficient markets such as real estate, natural resources, leveraged buyouts and venture capital.
Yale’s endowment generated a 12.3 percent return, net of fees, in fiscal 2018. For six of the past 10 years, Yale’s 10-year record ranked first in the Cambridge Associates universe. Spending from the endowment grew during the last decade from $850 million to $1.3 billion, an annual growth rate of 4.2 percent. Next year, spending will amount to $1.4 billion, or 34 percent, of projected revenues.
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