David Swensen is arguably among the most creative and successful investors in America, with a stellar record running the $15-billion Yale endowment. He is well known for being an early and aggressive enthusiast about private equity, natural resources, and energy, among other sometimes controversial asset classes. His imprimatur is so important that some like to say that a venture or private equity fund landing a Swensen commitment could almost certainly curtail other marketing and close out its fund raising, just on that news.
In their first 10 years together, Swensen and Takahashi arrived at an allocation strategy that hasn’t changed radically since: At the end of fiscal 2004, it was 25 percent in U.S. equity and bonds, 25 percent in hedge funds, 19 percent in real assets, 15 per-cent in private equity, 15 percent in international holdings and the rest in cash. They invest only in hedge funds that pursue absolute-return strategies, including mergers and acquisitions arbitrage, convert-ible bond arbitrage and distressed debt, which aren’t affected by the direction of the market.
The targeted allocation for 2005 is domestic equity and foreign equity at 14 percent each; do-mestic bonds, 5 percent; absolute return, 25 percent; and real assets, 25 percent. The increase of 6 percentage points in real assets was funded by reductions in the targets for bonds by 2.5 points, domestic equities by 1 point, foreign equities by 1 point and private equity by 0.5 point.