While alpha is not dead, opportunities to access it may not be available to all investors. Yale has consistently demonstrated its ability to identify high-quality active managers. For the past twenty years … 57 percent of Yale’s outperformance relative to the median Cambridge Associates endowment was attributable to the value added by Yale’s active managers.
Who said it: David F. Swensen, CIO of the USD 20 billion Yale Endowment Fund
In Context: The quote above is from the recently published annual report of the Yale Endowment. Swensen’s team is a smart money investor in alternative assets, as attested to by its widely published performance figures. He makes the case for his team’s acumen which has delivered above average returns for two decades. The fund performance is “unrivalled”, he said due to several factors that are hard to copy. The endowment is large enough to be a desirable LP. It enjoys the benefit of “access”, being able to invest in top tier venture and private equity funds, based on relationships built over time. Anyone can have the same asset allocation strategy as his team, but not everyone has the ability to select managers well, nor is it easy to get access to top quartile performers — and that is where the alpha (outperforming returns) lie. The report provides the data and charts to back up his claim. So where is this team’s smart money going this year? Yale says it will allocate 31% of its portfolio to private equity, the largest proportion for a single asset class. Real estate and Absolute Return strategies are also in favor.