“Take that, Exxon! Shove off, Chevron!”

Last summer Yale issued a list of fossil fuel stocks in which it would no longer invest. Conspicuously absent: Exxon and Chevron. Since then, shares in the two largest oil companies have produced significant gains for investors. This apparently inspired divestment activists to redouble their efforts, for both Exxon and Chevron have now been added to the list of stocks in which the Yale endowment must not invest.  

Exxon and Chevron shares are to be shunned because the companies fail to give enough support to climate-change regulations and climate-change science.

Yale Shuns (Some) Oil Stocks

Yale University aims to reduce its carbon emissions to zero by 2050. Meanwhile, it has issued a list of oil stocks in which it will not invest. Take that, Exxon! Shove off, Chevron! Bye bye, BP! 

Oh, wait. None of the above appear on Yale’s hit list of over 40 shunned oil stocks. According to the university’s list of guiding principles, “investable” oil companies produce fossil fuels only because no cleaner alternatives are readily available and take visible steps to reduce emissions where possible. Exxon, Chevron and BP apparently get passing grades. 

Determining when alternative energy sources are readily available can  be tricky. As Jim Gust called to my attention, Californians owning electric-powered vehicles probably shouldn’t expect that state's overstressed electric system to power them up this summer. 

Brown Beats Harvard, Trounces Yale

We refer, of course, to investment results, not football.

For fiscal 2019, Brown's endowment recorded an investment return of 12.4%

Harvard reported 6.5%.

Yale, a meager 5.7%

Over the same period, a plain vanilla portfolio of 60% stocks, 40% bonds returned 9.4% and the S&P 500 delivered 10.4%.

So take heart! Even the Ivy League elite aren't invincible.

Harvard Will Invest the Yale Way

In a move Jim Gust has frequently deplored, some years ago Harvard laid off its endowment's "overpaid" investment whiz. The endowment's returns have suffered. Now Harvard has decided to try the Yale model: a small in-house staff overseeing the efforts of carefully selected outside investment managers. (The system works great when the selecting is done by Yale's David Swensen.)

Take a second look at the Yale Daily News article linked above. Strikes me as pretty professional. Better than I'm likely to read in our local paper.

Who's Jinghi Cui, the student journalist? Glad you asked. She's a Yale soph who graduated from the Experimental High School attached to Beijing University. You pronounce her name JING-ee SOO-ee.

Here's another example of her reporting, this time on the pension burdens borne by Yale and other universities. Does any large private or public employer not have a pension problem?

Dartmouth 14.6, Yale 11.3 – But Not Exactly

Dartmouth's football team beat Yale, 28-27. Dartmouth's endowment has won more convincingly. For the fiscal year ending last June, Dartmouth achieved an investment return of 14.6%. Yale lagged at 11.3%.

In reality, there's less to all those numbers than meets the eye. Yale's one-point football loss resulted from an erroneous out-of-bounds

 ruling on an end-zone catch that video showed to have been a touchdown. As for the endowment returns, their precision is partly the result of accounting fiction, as Yale School of Management's Roger Ibbotson has pointed out:

"When you have private equity and venture capital assets that are not priced every day, it is difficult to know exactly what the real performance is. I don’t really like ranking the endowments annually because there’s such a significant measurement error."

Long term, the investment performance of Yale's endowment remains remarkable: an average of 12.1% per annum over the last 20 years.  The endowment's domestic equities returned 12.2%,  trouncing the benchmark return of 7.5%. Makes you wonder why David Swensen allocates only 4% of Yale's endowment to shares in U.S. companies.

David Swensen on Successful Investing

From this New York Times feature on Yale's famed investment guru:

Beware hot funds
“More assets produce more fees, but they force managers to add more positions, not just Grade A ideas,”

Don't look back

“We were talking to a manager who just had capital taken away because the fund had a bad year. The investor said, ‘Your five-year numbers are not so good, so we are firing you.’ That sounds like the stupidest thing I ever heard.

”Who cares about the trailing numbers if the fundamentals of the portfolio are good?”

7.4%

Average annual return from a 60 percent stocks, 40 percent bonds portfolio over the 20 years ending last June

12.6%

Average annual return earned by Yale's endowment over the same period

Alternative Assets Blur Annual Returns

The average university endowment has about half its money in alternative assets – real estate, private equity, hedge funds, whatever. Over 70 percent of Yale's endowment is in alternatives. As this article from  the Yale Daily News points out, calculations of these endowments'  annual returns cannot be precise. Five or ten years returns are a better guide to actual performance – and over those time periods, Yale looks pretty good.

Yale Beats Harvard, But . . .

Yale's endowment eked out an investment return of 3.4 percent for the fiscal year ending last June, handily beating Harvard, whose endowment lost 2 percent.

Many endowments suffered negative returns in fiscal 2016. Untutored amateurs who simply invested in a S&P 500 index fund did better, making about 4 percent.

Like the rest of us, university endowments are learning that we live in interesting but difficult times. After necessary expenditures, Yale's fund actually shrank during fiscal 2016.

Remember the good old days, when Yale boasted an annualized ten-year return of almost 18 percent?

Yale 11.5, Harvard 5.8

For the fiscal year ending June 30, Yale's endowment recorded an 11.5% return, down from the previous year's 20.2% but handily beating Harvard's 5.8% return. (MIT outpaced even Yale, returning 13.2%.)

Hedge funds and private equity (giddy up, you unicorns!) now dominate Yale's portfolio. Because they're favored by Yale's endowment manager, David Swensen, these alternative assets should remain popular with UHNW investors.

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Speaking of unicorns, if you're looking for an Advent calendar for a private equity player, The Metropolitan Museum of Art has just the ticket.

University Endowments Record Double-Digit Returns

Yale's endowment recorded a 20.2% investment return for the fiscal year ending June 30, keeping up with the torrid pace set by the S&P 500.

Reported results from other university endowments:

Dartmouth, 19.2%

MIT, 19.2%

Penn, 17.5%

Harvard, 15.4%

Originally this post erroneously credited Dartmouth's results to Brown.

Is Harvard Too Rich For Charity?

Kenneth C. Griffin, billionaire hedger, has pledged $150 million to Harvard, mostly for scholarships. Griffin's gift is the largest the university has ever received.

Does it make sense to give that kind of money to Harvard, an institution already half as rich as Warren Buffett?

No, opines this Bloomberg Businessweek columnist. He points out that Harvard's existing endowment could pay every student's tuition, room and board – about $60,000 – for many, many years.

Tuition, however, does not begin to measure what Harvard and other Ivy League schools spend on their students. According to these estimates, Harvard's annual expenditure per student exceeds what the average student pays by over $50,000. At Yale, over $95,000.

In a world where hardship and poverty remain widespread, donations to wealthy organizations inevitably draw criticism. (When I read that Harvard was naming its admissions office after Griffin, I thought they were kidding. Apparently not.)

Griffin Court, Chicago Art Institute

Previously, Griffin's most noted philanthropy was $19 million toward the magnificent new wing of The Chicago Art Institute. Some believe the money would have been better spent on efforts to reduce Chicago's murders and rampant drug addiction. Others assert that a splendid building, housing great art, enlightens and elevates the residents of the Second City more than another dozen anti-poverty programs. By most accounts, Chicago folks do like the new wing.

The Law's Delays

2013. Contested Inheritance Goes on Sabbatical. 

Less than a year before her death at 93 in 2012, Geraldine Webber largely disinherited the beneficiaries of her earlier will in favor of a young policeman. The resulting will contest (a trust contest, really) is unusual in that the aggrieved beneficiaries are charities, not relatives. For an earlier newspaper report and a link to a video of Webber executing her will, see Will Contest Goes to the Video.

When will the case go to trial? Not soon. The judge has approved a one-year sabbatical, perhaps to give the contending parties more time to reach a settlement.

1913. The Game

Big-time college football contests drawing vast crowds are now commonplace. A century ago, nothing compared to The Game. When Yale played Harvard, even justice was delayed.

The New York Sun, November 21, 1913

Harvard 11, Yale 9

After losing close to 30 percent in fiscal year 2009, the endowments of Harvard and Yale have staged modest comebacks. In the 12 months ending last June, Harvard's endowment recorded an 11 percent return. Yale was up 8.9 percent.

Over the last ten years, Yale's return did beat Harvard's. But both schools, and a number of others, suffered liquidity problems as a result of an increasing emphasis on alternative investments –timber, oil, real estate, private equity, etc.

Bloomberg Businessweek reports that cash shortages led to unprecedented borrowing:

Harvard University, Yale University and Stanford University, with combined endowments about equal to the gross domestic product of Lithuania, are among 15 of the wealthiest colleges and universities that borrowed $7.2 billion because their highbrow investing left them suddenly strapped for cash.

Yale's “Tainted Donations”

When the going gets tough – as in the Great Recession – the reverberations spread far and wide. Here and here, Nonprofit Quarterly reports on questions raised for Yale University by two business bankruptcies. Were seemingly generous donations to Yale "tainted?" Were they made with other people's money?

The Great Depression at Yale

Yale's highly-touted investment whiz, David Swensen, recorded worse-than-average losses for the university's endowment last year. Too much messing with hedge funds and alternative assets? Maybe. But during the Great Depression, a conservative investment stance didn't keep Yale's endowment out of trouble.

Here's a snippet from Gaddis Smith's feature story on Yale during the Great Depression in the Yale Alumni Magazine:

Although the university had avoided common stocks and kept most of the Yale endowment in bonds, income from the endowment declined by 21 percent. Gifts to the alumni fund, which had exceeded $1 million for the first time in 1926-27, dropped 85 percent to $142,732 in 1934-35. Not until 1950-51 would gifts be above $1 million again.

Smith's article is worth reading for the feel one gets of the divide between the haves and the have nots during the Depression. The dislike – nay, hatred – that a good number of the haves harbored for FDR can hardly be overstated. According to my memories from toddler days, it easily equalled the venom that "birthers" and others direct at our current President.

“Mr. Bubble” and His Famous Chart

Contrary to our earlier report, Yale's endowment lost a few percent less than Harvard's. But both posted decidedly below-average returns for the twelve months ending last June. Lately, Yale's David Swensen doesn't look quite so ultra-smart.

Happily, Swensen isn't Yale's only investment egghead. Robert Shiller warned Greenspan about "irrational exuberance" in the stock market, then recognized the real-estate bubble. As David Leonhardt of The New York Times writes in a Yale Alumni Magazine cover story, Shiller is now celebrated as the creator of "The Chart … one of the signature pieces of economic research of the past generation."

"The Chart" and other Shiller charts are here. They'll help you show investors why recovery from the Great Recession probably won't be quick and easy.

Yale Beats Harvard, Sort Of

Yale's endowment lost about 30% of its market value in the 12 months ending last June 30, dropping to about $16 billion from $22.9 billion. Harvard's endowment lost "only" 27.3% over the same period, dropping to $26 billion from $36.9 billion.

Update. The Wall Street Journal declares the Yale-Harvard investment-losses game a tie. (The shrinkage in Yale's endowment presumably reflected spending as well as investment losses.)

Feel Sorry for Harvard and Yale?

The endowments of Harvard and Yale are expected to report declines of 25% to 30% for their fiscal years, which end today. Many a smaller endowment has done better, the WSJ reports, mainly because smaller endowments invest more in bonds and little or nothing in "alternative" investments.

Don't feel sorry for the Ivies. As of a year ago, Yale had achieved a 20-year average annual return of 15.9%. Say Yale's return for fiscal 2009 is -30%. That still gives the Elis an average return of 13.15% over 21 years. And that's one reason Yale's endowment is still so large.

Compare:

At a nice, conservative 6%, in 21 years $100 will grow to about $340.

At 13.15% , in 21 years $100 will grow to well over $1,300.

After Madoff, Funds of Funds Aren't Fun

Recently we quoted Yale's David Swensen:

"If an investor can't make an intelligent decision about picking [hedge fund] managers, how can he make an intelligent decision about picking a fund-of-funds manager who will be selecting hedge funds?"

Investors, institutional or private, who paid the Fairfield Greenwich group handsomely to invest their money with Madoff probably didn't make an intelligent decision. But as the NY Times reports, some Madoff victims are suing.

Thanks to its Madoff conncection, says The Wall Street Journal, Fairfield Greenwich collected hundreds of millions of dollars in fees.

P.S. Yes, I realize that, officially, Madoff's imaginary brokerage accounts weren't a hedge fund. But if you quack like a duck . . .

Be an Enthusiastic Investor!

From a Yale Alumni Magazine interview with David Swensen, Yale's star endowment manager:

One of the great ironies is that if you had talked to the average investor 18 months ago, he or she would have thought it was a pretty good idea to buy stocks. In recent months, the same investors despair about their portfolio and are fearful about putting money into the equity market.

That's 180 degrees wrong. They should have been cautious 18 months ago, when prices were much higher than they are now. They should be enthusiastic today.