Ivy League Schools Learn A Lesson in Liquidity

James Stewart:

Just a year ago, in the midst of the subprime meltdown, many of the nation’s top universities and colleges were reporting significant gains. This year, the University of Pennsylvania is being hailed for Ivy League-leading results–with a decline of 15.7% for its fiscal year ended in June.
Results from other schools are still trickling in, but Harvard University has said it is expecting to report a drop of 30%, and Yale University about 25%. Considering the size of these endowments, these are staggering losses in absolute terms–many billions in the case of both Harvard and Yale.
Students soon will be heading back to larger classes, curtailed extracurricular activities and cheaper dining-hall fare. But the results are also of more than academic interest to investors like me, who have to some degree modeled their portfolios on the diversified asset-allocation model pioneered by Yale’s chief investment officer, David Swensen. What I refer to as the Ivy League approach for individuals calls for diversification along similar lines as the large university endowments–equities (domestic and foreign), fixed income, and real assets (which includes commodities and real estate), but with a much higher allocation to so-called nontraditional asset categories: emerging-market equities and debt, energy and commodities. Yale allocated just 10% to U.S. equities and 4% to fixed income, with 15% in foreign equities and 29% in so-called real assets as of June 30, 2008.