Yale guru tops managers in endowment returns

Fund rises 22.3%, followed by Stanford, Harvard


BOSTON -- Yale University's David Swensen, who oversees the school's $15.2 billion endowment, produced the highest returns among managers at the richest U.S. universities, beating his competitors at Stanford and Harvard with investments in hedge funds, real estate and private equities.

Swensen's fund rose 22.3 percent in the fiscal year that ended June 30, followed by Stanford University's 19.5 percent and Harvard University's 19.2 percent, according to a Bloomberg survey of the 25 largest college endowments. The universities of Michigan and Notre Dame each rose 19.1 percent.

The average fund in the survey rose 15 percent in 2005, down from 17.6 percent a year earlier. Returns at 16 of the universities, including Harvard and Texas A&M, showed smaller increases than in fiscal 2004, mostly because of smaller stock market gains. Yale and the University of Virginia led nine schools whose returns rose.

The Johns Hopkins University in Baltimore was one of four endowment funds that had returns of less than 10 percent. The others were Emory University, University of Pennsylvania and Texas A&M University

Swensen is "one of the star investors of our time," said John Griswold, executive director of Commonfund Institute, a research and education center in Wilton, Conn.

Swensen, 51, produced an average annual return of 17.4 percent during the past decade as the endowment swelled from $4 billion. He was one of the first university managers to invest in real estate and hedge funds after joining the school, in New Haven, Conn., as chief investment officer in 1985.

"We have an advantage to some extent because we did pioneer this approach," Swensen said in an interview.

"If you look at the consistency of our approach and the longevity of our team, nobody else out there can match the Yale investment process," he said.

Yale had about 25 percent of its fund in hedge funds; 25 percent in assets including real estate, timber and energy; 17 percent in private equity; and about 31 percent in stocks as of June 30, said senior financial analyst Daniel Kilpatrick. Yale's outside managers include Grantham, Mayo, Van Otterloo & Co., Bain Capital and Farallon Capital Management LLC.

"We've actually studied it, and the majority of the returns are coming from manager selection," Yale President Richard C. Levin said in an interview.

Swensen, who holds a Yale doctorate in economics, is the author of Unconventional Success, a book published this year by Free Press that attacks the mutual fund industry for its high fees and low returns. He says individual investors, lacking market knowledge and access to the managers that institutions hire, should stick to low-cost index funds.

"He works for an institution with a sterling reputation, and many people available to him aren't available to the vast majority of investors," Commonfund's Griswold said. Commonfund invests $34 billion for U.S. schools and nonprofit institutions.

Endowments at about 350 colleges, universities and independent secondary schools earned an average of 8 percent to 9 percent in 2005, according to a tally by Commonfund. That compares with an average return of 14.7 percent in 2004, based on a study of 700 schools it completed in January.

Stanford University in Palo Alto, Calif., gained 19.5 percent, second best in the Bloomberg survey and up from 18 percent last year. The school's $12.4 billion fund, overseen by Michael McCaffrey, had its strongest returns from international stocks, real estate and energy investments. A year ago, the fund set targets of 40 percent in stocks, 16 percent in real estate and 7 percent in natural resources.

Harvard's $25.9 billion endowment, the world's biggest, rose 19.2 percent in fiscal 2005, the last year under the direction of Jack Meyer. It returned 21.1 percent in 2004.

The Johns Hopkins University had a 9.6 percent return, compared with 15.3 percent last year. The $2 billion fund's performance was held down by a 45 percent allocation to U.S. stocks, Hopkins spokesman Dennis O'Shea said.

Matthew Keenan writes for Bloomberg News.

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