Yale Investments office 2011

The Yale Investments Office: February 2011

1. What is Yale’s private equity strategy?  

Their strategy was to focus on PE organizations that took a value-added approach to investing, as well as PE organizations without conflicts of interests or insufficient incentives, concentrating more holdings on top-flight firms, in addition to leveraging its name to gain access and invest in well-regarded funds. A key element to their strategy was to hedge their positions, for example, hedging with short sales and derivatives if there was excessive exposure to any publicly traded firm.

1. How has the office selected, compensated and controlled private equity fund manages?  

The office selected managers after long, critical analysis of their abilities, comparative advantages, performance records, and reputations. They compensated managers using fee structures that aligned these managers’ interests with Yale’s. The investment office staff ensured to develop close and mutually beneficial relationships with these managers, and while these managers were given quite some autonomy, there was still considerable mutual co-ordination to make worthwhile investments.

1. What explains the difference between their strategies in private equity from that in other asset classes?

Yale’s other investments are very much focused on equity. In the case of PE investments, these firms are buying whole companies, that is, both their debt and equity, thus exposing Yale to both debt and capital market fluctuations.

1. What is Yale’s response to increased fund raising?

Yale’s response to increase fund raising is to stay committed to private equity for four reasons. One, they had enjoyed historical success. Two, they had strong relationships with key managers and top-tier private equity organizations that had continued to generate superior returns. Three, Yale had a deep understanding of PE and could manage investments in sophisticated ways such as hedging its positions. Four, it was important to maintain presence in PE at all times to solidify Yale as ‘reliable’ investor in the market with top-tier firms.