9-807-073
REV: MAY 8, 2007

JOSH LERNER

Yale University Investments Office: August 2006
David Swensen slowly crossed the trading floor of the Yale Investments Office and looked over the hectic scene. While Swensen himself could not move quickly—he had been on crutches since an injury in the Yale Summer League championship softball game against the Biological and Biomedical Sciences team earlier in the month—the remainder of the staff was moving rapidly, whether leafing through online data or consulting with their peers about prospective investments. Swensen had every reason to feel content, despite his recent injury. The endowment had just completed another spectacular year, having grown to $18 billion (up from $1 billion when he had taken over the office). Yale had developed a rather different approach to endowment management, including substantial investments in less efficient equity markets such as private equity (venture capital and buyouts), real assets (real estate, timber, oil and gas), and “absolute-return” investing. This approach had generated successful, indeed enviable, returns. Swensen and his staff were proud of the record that they had compiled and believed that Yale should probably focus even more of its efforts and assets in these less efficient markets. But his thoughts turned to the larger challenges associated with the management of the university’s endowment. The very success of their strategy had generated new questions. How far did they think Yale should or could go in this direction? How should they respond to the growing popularity of the approach they had chosen? Given the turbulent times that private equity funds were facing, should this asset class continue to play an integral role in Yale’s portfolio?

Background1
Ten Connecticut clergymen established Yale in 1701. Over its first century, the college relied on the generosity of