Three Longs & Three Shorts

Yale may have turned institutional investing on its head with its new diversity edict

Thirty years ago Yale changed the ways university endowments across the Western world invest by highlighting the merits of investing a higher proportion in risk assets whilst seeking to ensure that the risk assets were diversified across public and private equity, developed and emerging markets. This shift catalysed the explosive growth of US private equity and venture capital and of Emerging Market equities. It also made Yale’s David Swensen, who currently manages $35billion for Yale, the Warren Buffett of the endowment world: “Credited for developing the so-called Yale Model, which is short on public equities and long on commitments to venture shops, private equity funds, hedge funds and international investments, Swensen has inspired legions of other endowment managers, many of whom worked for him previously, including the current endowment heads of Princeton, Stanford and the University of Pennsylvania.”
This article contends that Yale is now on the verge of making another such momentous shift by telling its money managers that Yale expects to see diversity in the investment teams who work for these managers: “It could be the long-awaited turning point in the world of venture capital and beyond. Yale, whose $32 billion endowment has been led since 1985 by the legendary investor David Swensen, just let its 70 U.S. money managers across a variety of asset classes know that for the school, diversity has now moved front and center.
According to the WSJ, Swensen has told the firms that from here on out, they will be measured annually on their progress in increasing the diversity of their investment staff, from hiring to training to mentoring to their retention of women and minorities.
Those that show little improvement may see the prestigious university pull its money, Swensen tells the outlet.”
So what prompted Yale to take such a strong stance on diversity? The author of this piece responds: “Indeed, while the dearth of woman and minorities within the ranks of venture firms may not be news to readers, a 2019 study commissioned by the Knight Foundation and cited by the WSJ underscores how big an issue it remains across asset classes. According to its findings, women and minority-owned firms held less than 1% of assets managed by mutual funds, hedge funds, private-equity funds and real-estate funds in 2017, even though their performance was on a par with such firms.”
As expected, Yale’s move is being met with resistance. To get a flavour of who will oppose this move and why you might want to read the readers’ comments shown towards the end of this piece.