Oxford Endowment Chief: No to the Yale Model

(March 8, 2010) – Universities in the United Kingdom should not try to emulate the notorious “Yale Model” of endowment investing, the head of the $1 billion Oxford endowment has said.

Sandra Robertson, leader of Oxford University Endowment Management (OUEM) – the company formed in 2007 to oversee the University’s and many of its colleges’ investment funds – has told London’s Financial Times (FT) that universities on the British Isles “should not try to emulate the Yale Model”, the investments style pioneered by Yale chief investment officer David Swenson that relies heavily diversification into the so-called illiquidity premium provided by alternative asset classes. Instead, the endowment relies on real assets – agricultural estates being one prominent example – with the goal of fending off inflation, and a low exposure to global equities. The latter was a reaction to unprecedented levels of volatility seen in the first half of 2008, Robertson said.

“I strongly believe no university should have the same asset allocation [as other universities],” Robertson is quoted as saying in the early March interview. “We talk to Yale and Harvard but we don’t try and emulate them. “There is no point in having a large allocation to private equity if you have no idea what you’re doing.”

The Oxford head has some evidence back here up: in the fiscal year ending in July, 2009, the ancient institute of learning lost just 4.8% of its endowment holdings, well above the average loss of between 19% and 23% seen in American universities over the same time period. Larger American endowments often faired even poorer, with Yale posting a 28.6% decline.

OUEM does not manage all of the money in the relatively decentralized University system. Two-thirds of the school’s 30-odd colleges manage their investments themselves or outsource the job. Many of these colleges saw steeper declines than OUEM, with some of the more prominent colleges nearing the average endowment losses seen in America.

“Some of the smaller colleges are struggling to get diversification in their portfolios but we don’t have a mandate to invest on their behalf,” Robertson told the FT.