<p>Some twisted logic in this article. Seems to be saying that Yale is saying that they have intentionally increased their allocation to private equity and real estate where it has been pretty clear that the allocation to these investments is up because they are illiquid and the general partners Yale has invested with have been demanding far more in capital calls than they have been paying out from exits. Meanwhile they have been raising cash from selling liquid investments like stocks and bonds, and ofcourse borrowing a ton of money.</p>
<p>Attached is a copy of the newly released annual report on the endowment:</p>
<p>WSJ makes clear point that Yale is not backing down on their aggressive approach. Given that Mr. Swenson has staked his entire reputation on this approach I wouldn’t expect Yale to change.</p>
<p>The report says that Yale did reduce its annual endowment draw from $1.17B to $1.12B for this academic year. Still with an endowment of $16B that represents a 7% draw which is far too high for a sustainable endowment. A sustainable draw of 5% would mean a draw of around $800M - $300M less than they are currently drawing.</p>
<p>While Mr. Swenson is going all in with risky alternative investments this article reflects the thinking of more and more institutional investors-that the risks associated with PE have not generated sufficient results and they are getting out.</p>
<p>I"n the late 1990s, the University of Virginia Investment Management Company, or UVIMCO, began earning market-beating returns by emulating Yale with high-risk, high-reward instruments such as hedge funds and private equity. Hired near the end of 2004, Brightman continued the strategy; but when the markets soured in the fall of 2008, he found himself presiding over an endowment pool that had plummeted nearly 20 percent falling from approximately $5 billion to approximately $4 billion.</p>
<p>Sorry, UVA alumni, wrote one influential blogger, youre going to have to make those gifts all over again.</p>
<p>I am pretty sure donors are fed up with the investment management at these schools. The schools better not count on the donors coming through like they did in the past because many donors are done.</p>
<p>This chart pretty much explains how PE is putting so much pressure on endowment cash flow. Charts capital calls versus cash exits. If the chart doesn’t come up the numbers are $120B in calls for 06 against $130B in exits. In 07 things began to change with $!90B in calls and $170B in exits. In 08 it realy changed with $150B in calls and $70B in exits then 09 with $80B in calls and only about $25B in exits.</p>
<p>“Some $7.7 billion of loans and high-yield bonds have been issued by private-equity-owned companies to back dividend payouts so far this year, according to Standard & Poor’s Leveraged Commentary and Data. Annualized, that’s the fastest pace of dividend recaps since 2007 and offers one way of lifting those flagging distributions to investors.”</p>
<p>A big chunk of that came from this HCA deal. How a company that is already $26 in debt is allowed by its bondholders to issue more debt is sort of beyond me.</p>
<p>I think recaps like this do show that PE companies are under tremendous pressure to do whatever they can to get some cash back to their limited partners.</p>
<p>Now you have this on top of the Galleon case. I’m beginning to understand why Hedge Funds are such an attractive investment for these endowments.</p>
<p>Kim walked into a real fiscal mess at Dartmouth. I’ve watched a couple of his presentations. It’s pretty clear that he knows almost nothing about higher ed finance, but I would say he’s done a solid job of budget cutting. They’ve whacked some real muscle out of Dartmouth.</p>
<p>Having said that, if they were really being honest about priorties, they would be taking an axe to their athletics programs.</p>
<p>Agree with the sympathy for poor Dr. Kim. He came in thinking that he would be inspiring the next generation of those interested in participating on the global level and has had to spend all of his time slashing with a big red pencil…</p>