耶鲁捐赠基金2003年（耶鲁投资办公室年度报告）

Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 1 2003 The Yale Endowment Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 2 Endowment Highlights Fiscal Year 2003 2002 2001 2000 1999 Market Value (in millions) $11,034.6 $10,523.6 $10,725.1 $10,084.9 $7,185.6 Return 8.8% 0.7% 9.2% 41.0% 12.2% Spending (in millions) $ 470.1 $ 409.3 $ 337.5 $ 280.8 $ 254.2 Operating Budget Revenues 1,553.7 1,466.6 1,352.9 1,263.5 1,252.1 (in millions) Endowment Percentage 30.3% 27.9% 24.9% 22.2% 20.3% Asset Allocation (as of June 30) Domestic Equity 14.9% 15.4% 15.5% 14.2% 15.1% Absolute Return 25.1 26.5 22.9 19.5 21.8 Foreign Equity 14.6 12.8 10.6 9.0 11.1 Private Equity 14.9 14.4 18.2 25.0 23.0 Real Assets 20.9 20.5 16.8 14.9 17.9 Fixed Income 7.4 10.0 9.8 9.4 9.6 Cash 2.1 0.3 6.2 8.1 1.5 Endowment Market Value 1950–2003 $12 $10 $8 Billions $6 $4 $2 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 Fiscal Year Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 3 Contents 1. Introduction 2 2. The Yale Endowment 3 3. Investment Policy 4 4. Spending Policy 14 5. Investment Performance 18 6. Management and Oversight 24 Front cover: A window in Sterling Memorial Library with a view of the Selin Courtyard Right: Arches in the Hall of Graduate Studies Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 2 Introduction During fiscal year 2003, the Endowment returned 8.8 percent in an environment in which domestic equity markets were flat and most endowments failed to earn more than a few percentage points of investment return. Strong active management in equities produced solid returns, and, with the exception of private equity, the Endowment’s alternative asset classes shone. Fiscal 2003’s strong results continue a remarkable fifteen-year streak of positive returns for the Endowment.

Over the past ten years, the Endowment grew from $3.2 billion to $11.0 billion. With annual net investment returns of 16.0 percent, the Endowment’s performance exceeded its benchmark and outpaced institutional fund indices. The Yale Endowment’s results over the past two decades are no less remarkable, as investment returns of 15.1 percent per annum produced a 2003 Endowment value of nearly ten times that of 1983. Yale’s long-term record resulted from disciplined and diversified asset allocation policies, superior active management results, and strong capital market returns.

Spending from Endowment grew during the last decade from $119 million to $470 million, an annual growth rate of nearly 15 percent. On a relative basis, Endowment contributions expanded from 14 percent of total revenues in fiscal 1993 to 30 percent in fiscal 2003. Next year, spending will approximate $500 million, or 32 percent of projected revenues. During the decade Yale’s spending and investment policies provided handsome levels of cash flow to the operating budget for current scholars while preserving Endowment purchasing power for future generations.

Endowment Growth Outpaces Inflation 1950–2003 $12 $10 $8 Billions $6 $4 $2 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 1950 Endowment Inflated Post-1950 Endowment Gifts Inflated Endowment Market Value Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 3 The Yale Endowment Totaling $11.0 billion on June 30, 2003, the Yale Endowment is an investment pool composed of thousands of funds with a variety of designated purposes and restrictions. Approximately four-fifths of funds constitute true endowment, gifts restricted by donors to provide long-term funding for designated purposes. The remaining one-fifth represent quasi-endowment, monies which the Yale Corporation chooses to invest and treat as endowment.

Donors frequently specify a particular purpose for gifts, creating endowments to fund professorships, teaching, and lectureships (23 percent), scholarships, fellowships, and prizes (18 percent), maintenance (4 percent), books (3 percent), and miscellaneous specific purposes (31 percent). The remaining funds (21 percent) are unrestricted. Twenty-seven percent of the Endowment benefits the overall University, with remaining funds focused on specific units including the Faculty of Arts and Sciences (38 percent), the professional schools (21 percent), the library (8 percent), and other entities (6 percent).

Although distinct in purpose or restriction, Endowment funds are commingled in an investment pool and tracked with unit accounting much like a large mutual fund. Endowment gifts of cash, securities, or property are valued and exchanged for units that represent a claim on a portion of the whole investment portfolio. In fiscal 2003, the Endowment provided $470 million, or 30 percent, of the University’s $1,554 million current fund income. Other major sources of revenues were grants and contracts of $458 million (29 percent), medical services of $230 million (15 percent), net tuition, room, and board of $210 million (14 percent), gifts of $64 million (4 percent), other investment income of $17 million (1 percent), publications income of $24 million (2 percent), and other income of $80 million (5 percent).

Endowment Fund Allocation Operating Budget Revenue Fiscal Year 2003 Fiscal Year 2003 Miscellaneous Grants & Contracts Professorships Specific Purposes Tuition, Room, Board Endowment Scholarships Medical Services Unrestricted Gifts Maintenance Other Income Books Publications Income Other Investments Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 4 Investment Policy Yale’s portfolio is structured using a combination of academic theory and informed market judgment. The theoretical framework relies on mean-variance analysis, an approach developed by Nobel laureates James Tobin and Harry Markowitz. In fact, both Tobin and Markowitz conducted work on this important portfolio management tool at Yale’s Cowles Foundation. Using statistical techniques to combine expected returns, variances, and covariances of investment assets, Yale employs mean-variance analysis to estimate expected risk and return profiles of various asset allocation alternatives and to test the sensitivity of the results to changes in input assumptions.

Because investment management involves as much art as science, qualitative considerations play an extremely important role in portfolio decisions. The definition of an asset class is quite subjective, requiring precise distinctions where none exist. Returns and correlations are difficult to forecast. Historical data provide a guide, but must be modified to recognize structural changes and compensate for anomalous periods. Finally, quantitative measures have difficulty incorporating factors such as market liquidity or the influence of significant, low-probability events.

The combination of quantitative analysis and market judgment employed by Yale produces the following portfolio: June Current Asset Class 2003 Target Domestic Equity 14.9% 15.0% Fixed Income 7.4 7.5 Foreign Equity 14.6 15.0 Absolute Return 25.1 25.0 Private Equity 14.9 17.5 Real Assets 20.9 20.0 Cash 2.1 0.0 Yale Endowment Target Asset Allocation June 30, 2003 Assets Dome Domestic Equity Real Assets FFixed Income Private Equity Ab Absolute Return E Equity Foreign it Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 5 The target mix of assets produces an expected real (after inflation) long-term growth rate of 6.2 percent with a risk (standard deviation of returns) of 11.7 percent. Primarily because of shortfalls relative to the target in private equity holdings, the actual allocation produces a portfolio expected to grow at 6.0 percent with a risk of 11.1 percent. The University’s measure of inflation is based on a basket of goods and services specific to higher education that tends to exceed the Consumer Price Index by approximately one percent. The need to provide resources for current operations as well as preserve purchasing power of assets dictates investing for high returns, causing the Endowment to be biased toward equity. In addition, the University’s vulnerability to inflation further directs the Endowment away from fixed income and toward equity instruments. Hence, 92.5 percent of the Endowment is targeted for investment in some form of equity, through holdings of domestic and international securities, real assets, and private equity. Over the past fifteen years, Yale has reduced dramatically the Endowment’s dependence on domestic marketable securities by reallocating assets to nontraditional asset classes. In 1988, nearly three-quarters of the Endowment was committed to U.S. stocks, bonds, and cash. Today, target allocations call for 22.5 percent in domestic marketable securities, while the diversifying assets of foreign equity, private equity, absolute return strategies, and real assets dominate the Endowment, representing 77.5 percent of the target portfolio.

The heavy allocation to nontraditional asset classes stems from their return potential and diversifying power. Today’s actual and target portfolios have significantly higher expected returns and lower volatility than the 1988 portfolio. Alternative assets, by their very nature, tend to be less efficiently priced than traditional marketable securities, providing an opportunity to exploit market inefficiencies through active management. The Endowment’s long time horizon is well suited to exploiting illiquid, less efficient markets such as venture capital, leveraged buyouts, oil and gas, timber, and real estate.

Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 6 Asset Class Yale’s six asset classes are defined by differences in their expected Characteristics response to economic conditions, such as price inflation or changes in interest rates, and are weighted in the Endowment portfolio by considering risk-adjusted returns and correlations. The University combines these assets in such a way as to provide the highest expected return for a given level of risk.

Domestic Equity Finance theory predicts that equity holdings will generate returns superior to those of less risky assets such as bonds and cash. The predominant asset class in most endowments and other U.S. institutional portfolios, domestic equities represent a large, liquid, and heavily researched market. While the average educational institution invests over 40 percent of assets in domestic equities, Yale’s target allocation to this asset class is only 15.0 percent. The domestic equity portfolio has an expected real return of 6.0 percent with a standard deviation of 20.0 percent. The Wilshire 5000 Index serves as the portfolio benchmark.

Despite recognizing that the U.S. equity market is highly efficient, Yale elects to pursue active management strategies, aspiring to outperform market indices by a few percentage points annually. Because superior stock selection provides the most consistent and reliable opportunity for generating excess returns, the University favors managers with exceptional bottom-up fundamental research capabilities. Managers searching for out-of-favor securities often find stocks that are cheap in relation to current fundamental measures such as book value, earnings, or cash flow. Yale’s managers tend to emphasize small-capitalization stocks, as they are less efficiently priced and offer greater opportunities to add value through active management. Recognizing the difficulty of outperforming the market on a consistent basis, Yale searches for managers with high integrity, sound investment philosophies, strong track records, superior organizations, and sustainable competitive advantages.

Fixed Income Fixed income assets generate stable flows of income, providing greater certainty of nominal cash flow than any other Endowment asset class. The bond portfolio has a low covariance with other asset classes, and provides a hedge against financial accidents or periods of unanticipated deflation. While educational institutions maintain a substantial allocation to fixed income instruments and cash, averaging 24.5 percent, Yale’s target allocation to fixed income constitutes only 7.5 percent of the Endowment. Bonds have an expected real return of 2.0 percent with risk of 10.0 percent. The Lehman Brothers U.S. Treasury Index serves as the portfolio benchmark.

Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 7 Yale is not particularly attracted to fixed income assets, as they have the lowest historical and expected returns of the six asset classes comprising the Endowment. In addition, the government bond market is arguably the most efficiently priced asset class, offering few opportunities to add significant value through active management. Based on skepticism of active fixed income strategies and belief in the efficacy of a highly structured approach to bond portfolio management, the Investments Office chooses to manage Endowment bonds internally. In spite of an aversion to market timing strategies, credit risk, and call options, Yale manages to add value consistently in its management of the bond portfolio. Willingness to accept illiquidity leads to superior investment results without impairing the portfolio protection characteristics of high-quality fixed income.

Foreign Equity Investments in overseas markets give the Endowment exposure to the global economy, providing diversification along with opportunities to earn above-market returns through active management. Emerging markets, with their rapidly growing economies, are particularly intriguing, causing Yale to target one-half of its foreign portfolio to developing countries. Yale’s foreign equity target allocation of 15.0 percent stands slightly above the average endowment’s allocation of 13.8 percent. Expected real returns for emerging equities are 8.0 percent with a risk level of 25.0 percent, while developed equities are expected to return 6.0 percent with risk of 20.0 percent. The portfolio is evaluated against a composite benchmark of 50 percent developed markets, measured by the Morgan Stanley Capital International (msci) Europe, Australasia, and Far East Index, and 50 percent emerging markets, measured by the msci Emerging Markets Free Index.

Yale’s investment approach to foreign equities emphasizes active management designed to uncover attractive opportunities and exploit market inefficiencies. As in the domestic equity portfolio, Yale favors managers with strong bottom-up fundamental research capabilities. Capital allocation to individual managers takes into consideration the country allocation of the foreign equity portfolio, the degree of confidence Yale possesses in a manager, and the appropriate asset size for a particular strategy. In addition, Yale attempts to exploit compelling undervaluations in countries, sectors, and styles by allocating additional capital and, perhaps, by hiring new managers to take advantage of the opportunities.

Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 8 Yale’s Endowment and the University’s Debt Yale’s $11 billion Endowment allows the specific risk, such that owners of portfolios Multi-modal Structure University to issue debt at attractive rates bear primarily market risk. Investors In 1988, Yale structured a $90 million and on competitive terms. A strong credit mitigate security-specific deviations by bond issue with more-than-usual flexibility position, combined with the ability to issue holding a range of securities that do not in setting term to maturity, providing the tax-exempt obligations, provides extremely fluctuate in a similar fashion, so that the University with a tool to manage interest cost effective funding for Yale’s capital variability of the portfolio is significantly rate exposure after the original date of programs. In recent years, proceeds from less than the variability of its individual issuance. The multi-modal documents debt financing supported renovations of components. negotiated by Yale established a convenient Sterling Divinity Quadrangle, Sprague In structuring a portfolio of liabilities, mechanism that allowed changes in the Hall, Vanderbilt Hall, and Timothy Yale seeks to reduce the level of current interest rate mode of the bonds across the Dwight College, as well as construction of and future interest expense and to mitigate term-to-maturity spectrum from daily rates the Anlyan Center at the Medical School. the impact of interest rate variability on to commercial paper rates to longer-term Projects in the pipeline include further the operating budget and on the market fixed rates. renovations of residential colleges and value of debt. Issuing debt along a construction of a new Chemistry Research spectrum of maturities, from overnight to Century Bond Building on Science Hill. In keeping with one hundred years, provides a range of In April 1996, Yale became the first the level of innovation brought to bear on instruments that Yale can deploy to University to sell bonds with an original the management of its Endowment over manage its liability portfolio. term to maturity of 100 years, issuing the years, Yale has been a leader in $125 million of 7.375% notes priced at a managing its debt and taking advantage Yale’s Leadership and Innovation spread of only 70 basis points over the 30-of opportunities in the taxable and tax- in the Capital Markets year U.S. Treasury bond. The bonds were exempt debt markets. issued with a 30-year call option, which The market value of Yale’s debt as of Self-Liquidity added between zero and two basis points June 30, 2003 totaled $1.7 billion. As In 1988, Yale became the first tax-exempt to the cost. measured by standard benchmarks such as institution to provide its own liquidity to debt as a percentage of the operating support the issuance of variable-rate debt. Undervalued Call Option budget and debt to Endowment value, the The liquidity commitment backed a pledge Because tax-exempt bond investors care University remains modestly leveraged. In to repurchase the University’s bonds in the more about yield and duration than about recognition of Yale’s superb educational unlikely event they were tendered by call provisions, Yale structures its fixed-program and its strong financial position, bondholders and the remarketing agents rate debt offerings to obtain aggressive call the University’s debt boasts ratings of Aaa were unable to remarket the bonds. features for little cost. For example, in from Moody’s Investors Service and AAA Previously, variable-rate issuers purchased 1992 Yale issued $87.6 million of 6.00% from Standard & Poor’s. Only fourteen an external liquidity facility or line of fixed-rate bonds due in 2030, callable after private colleges and universities and a credit to satisfy market concerns regarding ten years at 102. Following a decade-long, handful of American corporations share failed remarketing. Yale convinced the substantial decline in interest rates, in this elite credit status. rating agencies that it had sufficient 2002 the University issued $89.5 million Yale’s liability management strategy liquidity and financial sophistication to of 5.125% bonds to refinance the 1992 mirrors its asset management strategy, raise the funds necessary in a timely issue, saving an estimated $7.5 million in emphasizing the concept of portfolio fashion to cover any tendered bonds that interest costs for Yale. The 2002 bonds diversification. In a well-diversified were not remarketed successfully, thereby contained a seven-year par call, which cost portfolio of assets, investors control issue- saving the cost of an external facility. an estimated 13 basis points relative to a theoretical value of 40 basis points, providing a potential opportunity for the Key Financial Ratios for Large AAA Private Colleges and Universities University to reduce interest expense in 2009.

Median for Large AAA Yale Private Colleges and Universities Interest Rate Swap Systematic differences in the shape of Total Resources $11.5 billion $5.9 billion taxable and tax-exempt yield curves present opportunities for Yale to reduce Unrestricted Resources to Debt funding costs. Since short-term taxable and (Measures coverage of direct debt by 3.9x 4.3x tax-exempt rate differentials consistently the most liquid financial resources.) exhibit larger proportional spreads than Unrestricted Resources to Operations long-term taxable and tax-exempt rate (Measures coverage of annual 4.0x 2.1x differentials (see accompanying chart), tax-operating expenses by the most exempt borrowers achieve superior market liquid financial resources.) terms at the short end of the maturity spectrum. By borrowing in the area of Actual Debt Service to Operations (Measures the actual debt service burden 3.4% 3.4% greatest comparative advantage (short-on the annual operating budget.) term tax-exempt) and employing taxable interest rate swaps to control interest rate Note: Data from Private Colleges and Universities Outlook 2003/04 by Moody’s Investor Service. exposure, Yale creates synthetic fixed-rate Median numbers are based on FY2002 data. liabilities on extremely attractive terms.

Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 9 The University pioneered the use of The Short End of the Tax-Exempt Yield Curve taxable interest rate swaps to fix floating-rate tax-exempt liabilities with its 1988 Offers the Greatest Relative Value issuance of CHEFA Series LMNO. Yield Yale’s innovative debt management practices benefit the University specifically by providing funds for capital projects on Taxable Yield Curve attractive terms and assist tax-exempt Actual Tax-institutions generally by broadening and Exempt Yield Curve improving the range of financing Inefficiencies opportunities available to the not-for-profit community. The University’s Investment Office brings financial sophistication to the problem of liability management, while Implied Tax-Exempt Yield Curve Yale’s Endowment plays a critical, albeit [Taxable Yield Curve x (1-Tax Rate)] Theoretical Value of indirect, role in providing the financial Tax Exemption strength that underpins the University’s credit in the marketplace.

Term Efficiencies from: • Money Market Demand • Liquidity • Long-Term Rate Uncertainty Inefficiencies from: • Credit Concerns • Relative Liquidity • Tax Rate Uncertainty • Large Supply Note: Graph provided courtesy of Lehman Brothers.

Absolute Return In July 1990, Yale became the first institutional investor to pursue absolute return strategies as a distinct asset class, beginning with a target allocation of 15.0 percent. Designed to provide significant diversification to the Endowment, absolute return investments seek to generate high long-term real returns by exploiting market inefficiencies. Approximately half of the portfolio is dedicated to event-driven strategies, which rely on a very specific corporate event, such as a merger, spin-off, or bankruptcy restructuring, to achieve a target price. The other half of the portfolio contains value-driven strategies, which involve hedged positions in assets or securities that diverge from underlying economic value. Today, the absolute return portfolio is targeted to be 25.0 percent of the Endowment. In contrast, the average educational institution allocates only 13.4 percent of assets to such strategies. Absolute return strategies are expected to generate real returns of 6.0 percent with risk levels of 10.0 percent for event-driven strategies and 15.0 percent for value-driven strategies.

Unlike traditional marketable securities, absolute return investments provide returns largely independent of overall market moves. Over the past ten years, the portfolio exceeded expectations, returning 12.2 percent per year with essentially no correlation to domestic stock and bond markets.

An important attribute of Yale’s investment strategy concerns the alignment of interests between investors and investment managers. To that end, absolute return accounts are structured with performance-related incentive fees, hurdle rates, and clawback provisions. In addition, managers invest a significant portion of their net worth alongside Yale, enabling the University to avoid many of the pitfalls of the principal-agent relationship.

Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 10 Private Equity Private equity offers extremely attractive long-term risk-adjusted return characteristics, stemming from the University’s strong stable of value-added managers that exploit market inefficiencies. Yale’s private equity investments include participations in venture capital and leveraged buyout partnerships. The University’s target allocation to private equity of 17.5 percent and its actual allocation of 14.9 percent both far exceed the 5.1 percent actual allocation of the average educational institution. In aggregate, the private equity portfolio is expected to generate real returns of 11.4 percent with risk of 29.1 percent.

Yale’s private equity program, one of the first of its kind, is regarded as among the best in the institutional investment community. The University is frequently cited as a role model by other investors pursuing this asset class. Since inception in 1973, private equity investments have generated a 30.7 percent annualized return to the University. The success of Yale’s program led to a 1995 Harvard Business School case study—“Yale University Investments Office”—by Professors Josh Lerner and Jay Light. The popular case study was updated in 1997, 2000, and 2003.

Yale’s private equity assets concentrate on partnerships with firms that emphasize a value-added approach to investing. Such firms work closely with portfolio companies to create fundamentally more valuable entities, relying only secondarily on financial engineering to generate returns. Investments are made with an eye toward long-term relationships—generally, a commitment is expected to be the first of several—and toward the close alignment of the interests of general and limited partners. Yale avoids funds sponsored by financial institutions due to the conflicts of interest and staff instability inherent in such situations.

Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 11 Real Assets Real estate, oil and gas, and timberland share common characteristics: sensitivity to inflationary forces, high and visible current cash flow, and opportunity to exploit inefficiencies. Real assets investments provide attractive return prospects, excellent portfolio diversification, and a hedge against unanticipated inflation. Yale’s 20.0 percent long-term policy allocation significantly exceeds the average endowment’s commitment of 3.1 percent. Expected real returns are 6.0 percent with risk of 15.0 percent.

The real assets portfolio plays a meaningful role in the Endowment as a powerful diversifying tool and a generator of strong returns. Real assets provide relative stability to the Endowment during periods of public market turmoil, at the price of an inability to keep pace during bull markets. Pricing inefficiencies in the asset class and opportunities to add value allow superior managers to generate excess returns over a market cycle. Since inception in 1978, the portfolio has returned 14.7 percent per annum.

The illiquid nature of real assets combined with the expensive and time-consuming process of completing transactions create a high hurdle for casual investors. Real assets provide talented investment groups with the opportunity to generate strong returns through savvy acquisitions and managerial expertise. A critical component of Yale’s investment strategy is to create strong, long-term partnerships between the Investments Office and its investment managers.

Asset Allocations Yale Educational University Institution Mean Domestic Equity 14.9% 40.1% Fixed Income 7.4 21.0 Foreign Equity 14.6 13.8 Absolute Return 25.1 13.4 Private Equity 14.9 5.1 Real Assets 20.9 3.1 Cash 2.1 3.5 Data as of June 30, 2003.

Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 12 Real Assets Real assets investments involve physical proven ability to create value independent management business. Yale played a lead structures, tangible assets, or tradable of underlying market or commodity price investor role for sixteen real assets goods. Yale’s history of financial exposure movements. Believing that the basic return managers since 1990, all but one of which to real assets dates back to the early from real assets investments can be still manage assets for the University’s eighteenth century, when gifts of farmland augmented by operational expertise, Yale portfolio today. from King George III and the Colony of looks for firms with superior operating Yale focuses its real assets portfolio on Connecticut, as well as from friends of the capabilities, as opposed to groups with pure equity investments. Over the long College such as Major James Fitch, only financial engineering skills. Yale’s term, equity investments provide far Reverend Richard Salter, and Bishop strong preference is to work with higher return potential than mortgages George Berkeley, provided important operators that focus on a geographic and other debt instruments. Moreover, sources of annual income, both in cash region or property type, or both, believing debt instruments do not provide investors and in kind in the form of provisions such that specialized managers with deep with control of assets, leaving the fate of as pork and peppercorns. Yale leased out market knowledge and experience gain the investment in the hands of others. these farms, located far from the College an important edge over more diffuse Yale prefers real assets investments that in rural towns, for periods as long as 999 organizations. generate a current cash yield, whether years. Even today Yale collects modest Yale attempts to create strong, long- from property rents, reserve production, amounts of income on many of these term partnerships in which the interests or sustainable timber harvests. The properties. of the University and its investment presence of a substantial cash yield makes The advent of the contemporary real managers are closely aligned. Yale requires the total return on investment less assets portfolio dates to the 1950s, when investment managers to own a meaningful sensitive to the length of the holding Yale made its first oil and gas investment economic interest in every deal, period and reduces valuation risk. Yale and when the University began to acquire encouraging thoughtful acquisitions, garners a margin of safety by paying a direct interests in commercial real estate careful oversight, and timely dispositions. low purchase price. In real estate deals, ventures. Today the University maintains Yale targets employee-owned firms to Yale pursues investments in which asset an active real assets investment program ensure that incentive compensation pricing is at a discount to replacement in three core areas: real estate, oil and gas, benefits the individuals doing the work cost; in oil and gas, reserve acquisitions and timberland. As of June 30, 2003, and that general partner co-investment at a discount to long-term normalized Yale devoted more than one-fifth of the comes principally from the partners of the pricing; and in timber, forestland at a Endowment to investments in real assets. firm. Yale requires that its partners substantial discount to standing timber Holdings of real assets offer risk and maintain reasonable levels of assets under value. return characteristics well suited for the management, encouraging pursuit of only In the real estate portfolio, Yale Yale Endowment. Real assets investments the most attractive opportunities and developed a deep roster of investment provide claims on future streams of forcing managers to create wealth through managers focused on multiple property inflation-sensitive income, supplying the generation of high returns rather than types and geographies. Because local protection against unanticipated inflation the collection of large annual management supply and demand play a large role in and playing an important diversifying role fees. in the portfolio. In addition to attractive Yale’s investment strategy diversifying characteristics, real assets compels the University to present tremendous opportunities for support emerging investment superior managers to add value and management groups that are outperform industry averages. The illiquid not well-known, brand name nature of real assets and the information- companies. Even though newly intensive aspects of the transaction formed groups typically processes favor skilled and experienced include several highly investors. experienced and talented At present, the pricing of real assets founding partners, backing opportunities appears attractive, start-ups exposes the particularly relative to other asset classes. University to managerial and In real estate, for example, given the wide organizational risk as the spread between property yields and individuals attempt to jell as interest rates, high-quality assets generate a team and the management leveraged returns in the low double digits. company seeks to reach break-In oil and gas, disciplined firms put money even. In spite of the risks, to work with prospective double-digit the University benefited returns, assuming that future oil and gas enormously from the close prices match current forward market relationships forged with prices. In timber, acquisitions generate organizations that Yale similar low double-digit returns, assuming essentially put in the flat real future prices for wood and wood institutional funds products.

To take advantage of inefficient real U.S. Bank Plaza, an office estate, oil and gas, and timberland building located in Sacramento, CA managed markets, the University seeks talented by Yale’s partner, The and motivated investment managers with Shorenstein Company.

Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 13 determining market returns, much of the investors were too shaken by the bust of real estate portfolio is located in supply- the late 1980s to commit capital to any constrained areas, or areas where it is form of real estate. More recently, Yale difficult for others to construct competing stepped up commitments to community assets. Reflecting the University’s bias shopping centers in the late 1990s when toward focused managers, the portfolio’s other investors thought the Internet and largest managers are niche players, Wal-Mart were poised to drive traditional concentrating on narrowly defined areas, retail centers out of business. Similarly, such as prime office buildings in central adding timber investments to the business districts of major metropolitan Endowment in 1996 and expanding markets, retail assets in the Northeast, commitments to oil and gas in the late and office and residential properties in the 1990s increased the University’s exposure Westside submarket of Los Angeles. to real assets during a period when most Specialized managers with excellent investors were focused elsewhere. For its market knowledge add enormous value, contrarian investment stances, Yale has supporting the notions that real estate is been rewarded with excellent not a commodity and that values can vary A Mark II Unitorque pump, located in a Wyoming oilfield performance. managed by one of the University’s energy partnerships. tremendously even between neighboring Yale’s real assets investments provided properties. strong investment performance and In the oil and gas and timber arenas, In real assets, like other asset classes, important diversification to the price changes in the underlying Yale seeks value and behaves in a Endowment. Over the ten years ending commodity strongly influence investment contrarian manner. Investments reflect June 30, 2003, the portfolio returned an returns. Unfortunately, macroeconomic compelling opportunities and the annualized rate of return of 15.1 percent, and political factors drive commodity University’s ability to find suitable surpassing the benchmark return of 9.7 prices, making them extremely difficult, managers, regardless of activity in the percent. This solid performance generated if not impossible, to forecast. Rather broad market. The University makes $511 million in value added relative to the than depend on uncertain future price substantial bets in geographic areas or portfolio’s benchmark. Correlations over increases, Yale’s natural resource property types when great opportunities the last ten years between real assets and investments must meet return targets in exist. Yale’s favored strategy is usually Yale’s other asset classes have been flat price environments. If commodity among the most disfavored by extremely low, ranging between a low of prices rise, Yale’s natural resource institutional investors. For example, Yale -0.14 with the foreign equity asset class portfolio will generate handsome invested in land, office properties, and and a high of 0.18 with the private equity performance even as other parts of the hotels in the early 1990s when many asset class.

Endowment suffer from the higher costs of basic materials and energy.

In the oil and gas portfolio, Yale emphasizes the low-risk purchase of high-quality proven reserves. In finding managers that evaluate and operate assets more efficiently than large oil and gas companies, Yale generates substantial returns without depending on higher-risk exploration strategies. A portion of the energy portfolio is allocated to private equity investments in which investment managers take meaningful stakes in energy exploration, production, or service companies, and attempt to influence the management and growth of the company.

When investing in timberland, Yale concentrates on the purchase and sustainable management of natural forests in the United States. While generally slower growing than plantation forests, natural forests tend to be priced less efficiently and to offer more opportunities for skilled managers to add value through silvicultural activities, selective harvests, and wood merchandising. Like value stocks in the marketable securities world, slower growing forests sometimes can be purchased for overly discounted prices because of lack of interest by other A stand of larch trees, commonly known as tamarack, located in the Northwestern United States, held in one of Yale’s investors. timber partnerships.

Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 14 Spending Policy The spending rule is at the heart of fiscal discipline for an endowed institution. Spending policies define an institution’s compromise between the conflicting goals of providing substantial, sustainable support for current operations and preserving purchasing power of Endowment assets. The spending rule must be clearly defined and consistently applied for the concept of budget balance to have meaning.

Yale’s policy is designed to meet two competing objectives. The first goal is to release substantial current income to the operating budget in a stable stream, since large fluctuations in revenues are difficult to accommodate through changes in University activities or programs. The second goal is to protect the value of Endowment assets against inflation, allowing programs to be supported at today’s level far into the future.

Yale’s spending rule attempts to achieve these two objectives by using a long-term spending rate of 5 percent combined with a smoothing rule that adjusts spending gradually to changes in Endowment market value. The amount released under the spending rule is based on a weighted average of prior spending adjusted for inflation (70 percent weight) and the amount that would have been spent using 5 percent of current Endowment market value (30 percent weight).

Spending Growth vs. Inflation 1950–2003 $500 $450 $400 $350 $300 Millions $250 $200 $150 $100 $50 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 1950 Spending Inflated Target Spending from Post-1950 Gifts Inflated Actual Spending Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 15 The spending rule has two implications. First, by incorporating the previous year’s spending, the rule eliminates large fluctuations, enabling the University to plan for its operating budget needs. Over the last twenty years, annual changes in spending have been less than a third as volatile as annual changes in Endowment value. Second, by adjusting spending toward the long-term rate of 5 percent of Endowment, the rule ensures that spending levels will be sensitive to fluctuating Endowment levels, providing stability in long-term purchasing power.

Spending from the Endowment increased at a hearty pace during the past decade despite the conservative nature of Yale’s spending policy, with distributions rising from $119 million in fiscal 1993 to $470 million in fiscal 2003. Consequently, Endowment spending plays an ever-greater role in the budget, having risen from 14 percent of expenditures in 1993 to 30 percent in 2003.

Advanced writing workshop, taught by Lecturer Fred Strebeigh, Yale College Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 16 The Global University: Endowment Support for International Programs After World War ii, world events caused recent endowment-supported program to magazines. His background and his Yale and other educational institutions bring international figures to the Yale studies gave him a strong interest in to adopt an increasingly international campus. The George Herbert Walker, Jr. international affairs, reflected in outlook. Endowed funds played a crucial Lecture Fund, for instance, made possible memorials to Luce on Yale’s campus role in the development of global visits to Yale by such figures as former today. ycias occupies Luce Hall, a programs at Yale, supporting institutions U.S. Secretary of State Madeleine building given to Yale in 1996 by the such as the Yale Center for International Albright, former U.N. Secretary General Henry Luce Foundation. His name is and Area Studies (ycias), the World Boutros Boutros-Ghali, former Senator further commemorated by endowments Fellows Program, and the Yale-China George Mitchell, and former Treasury such as the Henry R. Luce Directorship Association, as well as professorships, Secretary James Baker iii. of ycias and the Luce Hall Maintenance seminars, and study-abroad courses. The Yale-China Association, which Endowment, an unusual fund which sets The Yale Center for International and last year celebrated its one hundredth aside income each year for the care and Area Studies (ycias) is the major campus anniversary, sponsors numerous scholarly upkeep of the ycias building. organization for the coordination of exchange programs, enjoying support Another alumnus, Joseph C. Fox, international programs and curricula. from several endowed funds. In 1994, graduated from Yale in 1938 and set out Housed in Luce Hall, the Center: Mrs. Katharine Lyman left a bequest to for Cambridge, England, for a year’s (1) provides opportunities for scholarly Yale University, part of which she advanced study. “The year of independent research and intellectual innovation; (2) designated to benefit the Yale-China research and study in England,” Mr. Fox encourages faculty-student interchange; Association. Income from this fund, which stated, “broadened my understanding of (3) brings international education and currently represents about 17 percent of world affairs and served as the catalyst training to teaching professionals, the Yale-China’s annual operating budget, for a career in international investment media, businesses, and the Yale plays a crucial role in providing the banking and an active interest in community at large; (4) sponsors more flexibility and creativity necessary to contributing to world peace.” To celebrate than 500 lectures, conferences, engage the Yale community with Chinese his 50th Yale College reunion, Mr. Fox, a workshops, and other activities each year; society in meaningful ways. Since the gift former partner at Kidder, Peabody & Co., and (5) produces a range of academic was made, Yale-China established established the Fox International publications. The ycias programs rely numerous new programs, most notably a Fellowships for student exchanges heavily on endowment support, such as service internship program for Yale between Yale and leading universities in the cornerstone 1966 fund established students to work in China during the China, England, France, Germany, Japan, by the Ford Foundation Fund for summer, a fellowship program that allows Mexico, and Russia. In the current International, Area, and Comparative young American lawyers to teach law in academic year, the ycias-administered Studies that supports eight professorships Chinese universities, and an aids training program supports twenty-three graduate and provides funds for various operations program for Chinese health care workers. and undergraduate students from Yale and at the Center. The personal interests and commitment seven non-American universities. Students The Yale World Fellows Program, of Yale alumni play an instrumental role are selected on the basis of their potential launched just two years ago, already in expanding the University’s international to become leaders in their fields, in their enjoys growing endowment support from capabilities. The Yale College Class of nations, and in the global community. a variety of funds, including the World 1920 included a young man of modest The Georg Walter Leitner Program in Fellows Program Fund, established by Mr. means who had been born in China to a International and Comparative Political and Mrs. Robert C. Ng, and the Glenn H. family of American missionaries. That Economy, made possible by a generous and Linda Vester Greenberg Fund for alumnus, Henry R. Luce, went on to gift in 2001 from James Leitner, is one of World Fellows. The Program brings achieve prominence as the co-founder of the many funds that sponsor research by eighteen mid-career leaders from around Time, Life, and other successful Yale undergraduates, graduate students, the world to Yale each fall to study critical issues facing the global community. Recent World Fellows have been ceos, members of parliament, government ministers, ngo leaders, military officers, public health experts, and journalists. While at Yale, Fellows attend an intensive World Fellows Seminar taught by some of Yale’s most distinguished professors. Participants share their diverse professional and cultural perspectives with the larger Yale community, serving as guest lecturers in academic departments and as guest speakers at Yale forums and roundtables.

In 2003 alone, World Fellows gave more than fifty talks and presentations on topics ranging from the devastation wrought by Africa’s small arms trade to the plight of Asia’s urban poor.

World Fellows represents only the most Luce Hall, built with support from the Henry R. Luce Foundation, houses the Yale Center for International and Area Studies.

Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 17 Yale’s curriculum, which now offers programs. An additional 10 percent of seventy-eight foreign languages, students in each Yale graduating class increasingly reflects the interdisciplinary have gone abroad during their approach required to understand global undergraduate years, independently issues. Yale’s Endowment plays a critical of formal junior-year programs. role in providing resources for faculty Students from other countries attend positions in international studies, with Yale in increasing numbers, as the twelve endowed funds at Yale supporting University becomes more global in every twenty faculty members. Such endowed respect. In 2001, President Richard C. funds include the Juan T. Trippe Levin implemented a change in financial Professorship Fund (for international aid policy for Yale College that extended business administration), the Sumitomo support to foreign students. The policy Junior Faculty Fund (for Japanese change and subsequent new endowment studies), the Heinz African Studies Fund, gifts resulted in a tripling of financial aid the Leitner International Interdisciplinary dollars going to international students and Professorship (for international relations), a rise in their number. Currently about 8 Former U.S. Secretary of State Madeleine Albright gave an address at Yale under the auspices of the Yale Center for and the William K. Lanman Professorship percent of Yale undergraduates come from International and Area Studies, thanks to support from the for International Studies. A wealth of abroad, compared to 6 percent before George Herbert Walker, Jr. Lecture Fund. She was welcomed by short-term faculty support, provided by 2001. The entire student body (including Gustav Ranis, the Henry R. Luce Director of YCIAS and Frank funds such as the Henry Hart Rice Yale College, the Graduate School, and Altschul Professor of International Economics.

Endowed Visiting Lectureship Fund, the ten professional schools) at latest enhances Yale’s curriculum in global count draws 16 percent of students from and faculty on topics in international and studies. outside the United States, representing a comparative political economy. Located at Endowment support for international total of 1,775 foreign students from 101 ycias and directed by Professor Frances exchanges allows hundreds of Yale different countries.

McCall Rosenbluth, the program students to undertake study and research “Globalization is not a choice; it is organizes conferences and workshops, nearly anywhere in the world. The a fact of life,” ycias states in its latest brings short-term visitors to Yale, and Jonathan Tristan Perlroth (b.a. 1993) annual report, echoing a policy enunciated publishes research by Yale faculty and Memorial Fund, created in 1994 by the by President Richard C. Levin as he students in a Working Papers series. honoree’s friends and family, provides articulated his vision for the University’s Beyond its ongoing series of papers and grants to juniors and seniors for travel fourth century. The President made a lectures, the Leitner program sponsored outside the United States. The Les Aspin commitment nearly a decade ago to two conferences in the spring of 2003: Summer Fellowship (1998), given by the “Yale’s intention to become a truly global Electoral Microfoundations of Economic Class of 1960, supports summer projects institution.” Today, thanks to its generous Policy Making, which brought together on national security and international donors, whether individuals, corporations, political scientists and economists affairs for rising juniors and seniors. Each or foundations, the University counts on a specializing in institutional analysis to year, over 100 students, about 10 percent remarkable level of support from consider the effects of different electoral of the Yale College juniors, participate in endowments to achieve that goal. rules in wealthy democracies; and one of Yale’s full-credit Study Abroad Laboratory in Comparative Ethnic Processes, which treated the subject of the consequences of ethnic conflict.

Large organizations, in addition to individuals, have played a meaningful role in providing endowment support for international programs. An endowment created by the Coca-Cola Foundation in 1992, jointly administered by Yale’s School of Management, the Law School, and ycias, sponsors: (1) a seminar in international political economy led by prominent U.S. and international specialists; (2) overseas projects for graduate and professional school students, in areas such as industrial privatization and environmental regulations, legal barriers to women’s business activities in the third world, food trade policy and agricultural productivity; (3) faculty research support, especially in collaboration with foreign scholars; and (4) a program to invite senior Leaders in business, government, and other fields from eighteen nations visit the Yale campus each year through the Yale World practitioners with global experience to Fellows Program. The 2003 World Fellows shown at a recent reception came from Australia, Canada, Chile, Colombia, Egypt, spend time on the Yale campus. Germany, India, Iraq, Indonesia, Mexico, the Netherlands, Nigeria, People’s Republic of China, Slovakia, South Africa, Uganda, United Kingdom, and Zimbabwe.

Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 18 Investment Performance Yale has produced excellent investment returns. Over the ten-year period ending June 30, 2003, the Endowment earned an annualized 16.0 percent return, net of fees, placing it in the top one percent of large institutional investors. Endowment outperformance is attributable to sound asset allocation policy and superior active management.

Yale’s long-term superior performance relative to its peers and benchmarks created substantial wealth for the University. Over the ten years ending June 30, 2003, Yale added $4.7 billion relative to its composite benchmark and an estimated $5.2 billion relative to the average return of a broad universe of college and university endowments.

Performance by Yale’s long-term asset class performance continues to be strong. Asset Class In the past ten years every asset class posted superior returns, in all cases significantly outperforming benchmark levels.

For the decade ending June 30, 2003, the domestic equity portfolio returned an annualized 15.5 percent, outperforming the Wilshire 5000 by 5.9 percent per year and the Russell Median Manager return by 4.9 percent per year. Yale’s active managers have added value to benchmark returns primarily through stock selection. Yale’s internally managed fixed income portfolio earned an annualized 7.8 percent over the past decade, outpacing the Lehman Brothers Treasury Index by 0.6 percent per year and the Russell Median Manager return by 0.8 percent per year. By making astute security selection decisions and accepting illiquidity, the Endowment benefited from excess returns without incurring material credit or option risk.

Over the past decade, the absolute return portfolio produced an annualized 12.2 percent, exceeding its passive benchmark of the One-Year Constant Maturity Treasury plus 6 percent by 0.7 percent per year and its active benchmark of hedge fund manager returns by Relative Investment Performance of the Yale Endowment 1993–2003 (1993=100) 400 443 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Endowment Mean of Broad Universe of Colleges and Universities Inflation Endowment Update 03 Q5.qxd 1/22/04 11:39 AM Page 19 0.8 percent per year. For the ten-year period, absolute return results exhibited essentially no correlation to traditional marketable securities.

The foreign equity portfolio generated an annual return of 9.1 percent over the ten-year period, outperforming its composite benchmark by 5.8 percent per year and the Russell Median Manager return by 5.6 percent per year. The portfolio’s excess return is due to effective security selection and country allocation by active managers.

Results from Yale’s non-marketable assets demonstrate the value of effective active management. Private equity earned 36.0 percent annually over the last ten years, outperforming its passive benchmark of University inflation plus 10 percent by 22.2 percent per year and the return of a pool of private equity managers compiled by Cambridge Associates by 14.0 percent per year.

Since inception in 1973, the private equity program has earned an astounding 30.7 percent per annum.

Real assets generated a 15.1 percent annualized return over the ten-year period, outperforming the passive benchmark of University inflation plus 6.0 percent by 5.3 percent per year and an active benchmark of real assets manager returns by 5.4 percent per year. Yale’s outperformance is due to the successful exploitation of market inefficiencies and timely pursuit of contrarian investment strategies.

Asset Class Returns Relative to Benchmarks 1993–2003 40% 35% 30% 25% 20% 15% 10% 5% Domestic Equity Fixed Income Foreign Equity Absolute Return Private Equity Real Assets Yale Return Active Benchmark Passive Benchmark Active Benchmarks Passive Benchmarks Domestic Equity: Frank Russell Median Manager, U.S. Equity Domestic Equity: Wilshire 5000 Fixed Income: Frank Russell Median Manager, Fixed Income Fixed Income: Lehman Brothers Treasury Index Foreign Equity: Frank Russell Median Manager Composite, Foreign Equity: 50% msci eafe Index, 50% msci emf Index Foreign Equity Absolute Return: 1-year Constant Maturity Treasury +6% Absolute Return: csfb Composite Private Equity: University Inflation +10% Private Equity: Cambridge Associates Composite Real Assets: University Inflation +6% Real Assets: ncreif and Cambridge Associates Composite Endowment Update 03 Q5.qxd 1/22/04 11:40 AM Page 20 The Yale University Art and Library Collections Visitors to Yale’s galleries and libraries in every field of the Gallery’s encyclopedic endowment, acquires works by living immediately recognize that the University international collections, and the Gallery American artists over forty. Since its possesses treasures of inestimable value. continues to receive new endowments to inception in 1999, it funded the purchase Acquired over centuries, these collections refresh the University’s collections. of more than 130 paintings, sculptures, edify and educate both serious scholars Some endowment funds purchase photographs, prints, and drawings by a and casual observers. Philanthropists works only in specific media. The Everett wide range of major artists. contribute to Yale’s bounty in two V. Meeks (b.a. 1901) Fund, named in Several major acquisition endowments, important ways: by giving artwork or honor of the distinguished Dean of the unrestricted as to field or medium, permit other objects to Yale and by contributing Yale School of the Fine Arts from 1922 to purchases in any area and provide funds for acquisitions. Early gifts in kind 1947, supports the acquisition of works maximum flexibility for the Gallery to established most of Yale’s art and library on paper over fifty years old. The respond to acquisition opportunities. The collections, and later gifts of funds mainstay of acquisitions in this field, the Stephen Carlton Clark (b.a. 1903) Fund, financed further growth. Today, current Fund financed more than 1,130 works by begun with a $1 million bequest in 1961 use funds provide monies for near-term artists ranging from Albrecht Dürer, from the great donor of paintings to Yale, purchases and endowed funds serve as a Andrea Mantegna, Rembrandt van Rijn, financed the purchase of outstanding permanent resource, generating income and Jacob Jordaens, to John Trumbull, works of Japanese, Chinese, African, that will finance additions to the Yale Ferdinand Delacroix, and Edouard Manet. European, ancient Mediterranean, and collections far in the future. Figure 1 shows a Jacob Jordaens American art. In 1973, the Clark Fund drawing of a goat in colored chalks and supported the purchase of fifty-four Yale University Art Gallery washes, acquired through the Meeks exceptional Maya, Aztec, and other The Yale University Art Gallery, the oldest Fund. Although today scholars most often works of art from the ancient Americas, art museum affiliated with an American associate Rubens and Van Dyck with the providing the heart of the Gallery’s university, developed from the collection Flemish golden age, Jordaens was actually collection in this style. of one hundred original paintings and the most sought-after painter in Antwerp The Yale Art Gallery acquired the miniatures that artist John Trumbull gave in the mid-seventeenth century. Detailed terracotta in Figure 2, a Nayarit Ball to the institution in 1832. Endowed funds observation, rich coloring, and total Game with Spectators (100 b.c.–a.d. now provide monies for most acquisitions composition—the figure of the goat 250), with monies from the Clark Fund. of the Gallery’s works of art. In 1929 a fills the entire space—lend a sense of Ancient Mesoamericans played games gift of $100,000 established the first completion to a drawing that functioned with rubber balls from around 1200 b.c. endowment for acquisitions, the Maitland primarily as a study for later until the time of the Spanish conquest. F. Griggs (b.a. 1896) Fund. In the past commissioned works. Based on the myth of the divine Hero seventy-plus years, the Griggs Fund and Other acquisition endowments focus Twins, the Mesoamerican ballgame fifteen other endowed acquisition funds on specific time periods rather than contained profound cosmic symbolism. enabled the purchase of more than 2,300 specific media. The Ruth Elizabeth White More than just a sport, the ball game works for the Yale collection, including Fund provides support for the acquisition represented a true ritual of life and death, some of the most important works of art of ancient Greek, Roman, and Etruscan staged in an elaborate ball court setting. owned by the University. Endowment art. The Janet and Simeon Braguin Fund, In this rare model, villagers crowd around funds support acquisitions of works of art the Gallery’s single largest acquisition the edge of a ball court to watch the game within. Men wearing breechcloths and belts and women in skirts wrap their arms around children and each other.

This model, placed inside a tomb, perhaps commemorated a ballgame in which the deceased took part. The ballgame constitutes one of the key themes in the teaching of the art of the ancient Americas.

Far left: Figure 1: Goat, c. 1628-41, by Jacob Jordaens, colored chalks and washes.

Everett V. Meeks (b.a. 1901) Fund, Yale University Art Gallery.

Left: Figure 2: Nayarit Ball Game with Spectators, 100 b.c.–a.d. 250, terracotta. The Stephen Carlton Clark (b.a. 1903) Fund, Yale University Art Gallery.

Endowment Update 03 Q5.qxd 1/22/04 11:40 AM Page 21 Left: Figure 3: Manuscript map of North America, c. late 1630s, pen and ink and watercolor on parchment.

Paul Mellon Fund, Yale Center for British Art.

Below: Figure 4: The Thistlethwayte Family, by Thomas Hudson, c. 1758, oil on canvas. Paul Mellon Fund, Yale Center for British Art.

Yale Center for British Art of North America and shows an Hudson’s The Thistlethwayte Family, In 1966 Paul Mellon (b.a. 1929), one of immense body of water just beyond shown in Figure 4. Hudson’s oil painting the University’s most generous donors, the Appalachians. It helped to promote on canvas (c. 1758) is a life-size depiction gave the building, the works of art, and the idea that any successful colony in of Alexander Thistlethwayte, his wife the endowment that established the Yale “Carolana” would have access to ports Sarah, and their two daughters Catharine Center for British Art. Thanks to that gift, on this sea and thus to trade with China and Anne. The son of a gentleman, the University significantly added to the and the Far East. Thistlethwayte represented Hampshire as scope and richness of its art collections as The new acquisitions have also a Member of Parliament. Showing the well as its architecture. The Center houses enhanced the Center’s collection of eldest daughter in pink, a color frequently the most comprehensive collection of worn by young women at the time of their approximately 2,000 paintings. A betrothal, the painting may well have been British art outside the United Kingdom, stunning addition to the specialized commissioned to celebrate Catharine’s documenting the development of British collection of eighteenth-century family impending marriage to Thomas art, life, and thought from the Elizabethan and group portraits, commonly called Milbourne. period to the present. In addition to “conversation pieces,” is Thomas masterpieces by Hogarth, Gainsborough, Reynolds, Stubbs, Constable, Turner, and other artists, its holdings include some 50,000 prints and drawings, plus 20,000 rare books and manuscripts and a reference library.

Upon his death in 1999, as part of an extraordinarily generous bequest to the University, Mr. Mellon left $15 million to endow a fund that allows the Yale Center for British Art to purchase works that will enhance its collections. In his honor, on the occasion of the Center's twenty-fifth anniversary, the Center acquired important objects for each major collection.

One of the new works, the map of North America, shown in Figure 3, complements the important collection of maps given to the Yale Center for British Art and the Beinecke by Mr. Mellon. The map, in pen and ink and watercolor on parchment, was drawn in London by a member of the Thames School of chartmakers, probably sometime in the late 1630s. Likely prepared in conjunction with a proposal to establish a permanent colony in “Carolana,” the name the English used for the region south of Virginia prior to 1663, the map depicts all Endowment Update 03 Q5.qxd 1/22/04 11:40 AM Page 22 stunning microform archive of more than one million original documents of Winston Churchill.

The Library boasts a recent acquisition of extensive files on New Haven real estate from the firm of White Brothers, Clark, Hall & Peck. Stored in more than 2,000 boxes, the collection details broad regional and national trends from the 1840s to the 1960s, providing a resource of great importance to students of New Haven history. Funds for the purchase of these documents came from the Library’s Arthur D. Krom Fund, as well as from resources of the Law School and the Beinecke Rare Book and Manuscript Figure 5: Imprint from the Siku Quanshu (Complete Library Library. of the Four Branches of Literature), an eighteenth-century collection of some 80,000 texts, in digital format. Ford The Siku Quanshu collection is an Foundation Fund and Edward W. Southworth Fund, Yale online resource containing electronic University Library. copies of 80,000 Classical Chinese texts, financed in part by Ford Foundation Yale University Library funds for the Council for East Asia Figure 6: A page from the Wiener Farbenkabinet (Viennese According to legend, the Yale Library, studies, and in part by the Edward W. Color Collection) illustrating forty-eight shades of one variety of blue. The two-volume work, a numbered compendium of which now numbers about 11 million Southworth Fund, a 1903 endowment for nearly four thousand hand-painted color samples, was volumes, originated in 1701 as a gift of library acquisitions. Yale makes the published in Prague and Vienna in 1794. Faber Birren Fund, some forty books from the personal collection available to fifteen other major Yale Arts Library. libraries of the College’s founders. The American universities. The archive adds Library, now a centrally managed and considerably to Yale’s holdings in Chinese Musterbuch aller Natur-, Grund-, und closely entwined federation of twenty-two literature and draws on electronic formats Zusammensetzungfarben, or “Viennese libraries, funds its acquisitions in two to give researchers access to material Collection or Complete Book of Samples principal ways. About two-thirds of the formerly very difficult to study. While of all Natural, Basic, and Combined collections-and-content budget stems from many archives contain only bibliographic Colors.” Published in Vienna and Prague endowed funds and about one-third stems references to and descriptions of by Verlag der Schoenfeldschen Handlung from current use funds. The Yale Library documents, this collection offers copies of in 1794, the work boasts 79 plates, one of also receives numerous gifts of books and the documents themselves. Figure 5 shows which is shown in Figure 6, containing a other materials from donors each year. part of the title page of the collection. total of 3,792 hand-painted color samples Of all the collections at Yale, the The modern-day diversity of the in graduated hues, each named and Library boasts the earliest endowed funds Library’s formats does not eclipse the numbered, with the exact formula for for purposes of acquisition. The first such continuing importance of books to its replicating each color appearing on the fund dates back to 1763, when Jared Eliot collections. Thanks to funding from the opposing page. Originally produced as a (b.a. 1706) and Thomas Ruggles (b.a. Faber Birren Fund, established in 1975 color manual for artists, craftsmen, dyers, 1723) gave a combined gift of $10 to the specifically for acquisitions by the Art and printers, the book has enduring value Library. A more recent acquisition fund, and Architecture library, Yale recently for art historians, conservators, and the Barney T. Young (b.a. 1955) Fund for purchased the rare, two-volume Wiener anyone with an interest in the study Military History, created in 1999, focuses Farbenkabinet oder vollstaendiges of color. on books on a particular subject and includes provisions for maintenance and assurance of access to collections.

Today, in addition to books, the Library collects electronic files, film, videos, microforms, and other media. One unusual addition to the Library collection, attributable to the Arthur D. Krom Fund for manuscript and library acquisitions, is the acquisition of two video archives Figure 7: Two pages from purchased from Globalvision, a New York a Bolognese based media production firm, that were fourteenth-century the basis for televisions series on human copy of John rights and South Africa. Each of the Cassian’s Collationes, a archives has about 2,500 videos and offers collection of a wealth of information in a relatively biographies of the new format for Yale’s archival collections. founders of ascetic monasticism.

Another recent acquisition, purchased Beinecke family jointly through a Beinecke acquisitions funds, Beinecke endowment and the Lewis P. Curtis (b.a. Rare Book and Manuscript 1923, ph.d. 1926) Memorial Fund, is a Library.

Endowment Update 03 Q5.qxd 1/22/04 11:41 AM Page 23 Beinecke Rare Book In 2002 the Beinecke acquired the and Manuscript Library majority of the medieval manuscripts in The Beinecke houses the principal rare the library of B.S. Cron of Kew, Surrey, books and literary manuscripts of Yale a well-known collector of historical University and serves as a center for documents. Shown in Figure 7 are two research for students, faculty, and other pages from a Bolognese fourteenth-readers. Containing about 500,000 century copy of John Cassian’s volumes and several million manuscripts, Collationes, a collection of biographies of the collection originated through gifts-in- the founders of ascetic monasticism. The kind, and resides in the building erected in illustrations contain idealized portraits of 1963 to meet the special needs of these these monks, depicted with a combination extraordinary treasures. The building and of iconographical elements of ancient its endowment represent the gift of the philosophers and Old Testament prophets. families of Edwin J. Beinecke (b.a. 1907), The manuscripts in this collection are Frederick W. Beinecke (b.s. 1909), and especially noteworthy given their elegance, Walter Beinecke (b.a. 1910). The Beinecke their age, and their provenance. receives support from a number of Endowment support allowed the endowments dedicated to its five major Beinecke to acquire the Peter E. Palmquist collections: the General Collection of Rare Collection, one of the finest collections on Books and Manuscripts, the Collection of the history and practice of photography American Literature, the Collection of ever assembled in private hands. The Western Americana, the German collection’s more than 100,000 vintage Literature Collection, and the Osborn photographs range from pioneer Collection of English Literary and daguerreotypes to recent images taken by Historical Manuscripts. Western women photographers. Figure 8, Figure 9: Geared mechanism for lifting well water, engraving The Beinecke’s acquisitions in recent a clear-glass ambrotype with brown velvet from The Diverse and Complex Machines, a 1588 work by Agostino Ramelli annotated with handwritten commentary by years show stunning diversity and include backing dated about 1855, depicts five Thomas Arundell. Elizabethan Club Endowment Fund (1911), a number of important works that range women of the Peralta family of Oakland, Elizabethan Club. from a New Mexico family archive, California. mostly in Spanish and dated from 1775 Elizabethan Club through 1900, to the Diaries and Founded in 1911, the Elizabethan Club Correspondence of Zane Grey and his resides today in a house at 459 College wife Dolly, to a collection of fifteenth-Street, a gift from alumnus Alexander century printed editions of Aristotle, to a Smith Cochran (b.a. 1896) as a haven for seventh or eighth century b.c.e. Book of faculty and students interested in English the Dead from Egypt, to an archive of Figure 8: Five women of the Peralta family of Oakland, literature and literary conversation. Israeli poet Yehuda Amichai, to a first California, in a clear-glass ambrotype with brown velvet In addition to his own collection of edition of Virginia Woolf’s novel backing dated about 1855, one of the 100,000 Western Shakespeare first editions, Cochran left an Mrs. Dalloway. American photographs in the Peter E. Palmquist Collection. Beinecke family funds, Beinecke Rare Book and Manuscript endowment to support the Elizabethan Library. Club. This fund, along with a fiftieth anniversary gift from members in 1961 and many other endowment gifts, helps support the activities of the Club and the occasional acquisition of new works for the Club’s library, which serves as a research collection serviced through the Beinecke Library.

One recent acquisition is a richly illustrated sixteenth-century volume on mechanics by Agostino Ramelli, purchased for the collection in 1999.

The Club’s copy of Le Diverse e Artificiose Machine (The Diverse and Complex Machines), dated 1588 and containing 194 engravings, was owned by the famous soldier of fortune, Thomas Arundell, known as “The Valiant” for his exploits against the Turks in Hungary while serving the Holy Roman Emperor.

The volume contains Arundell’s proposed improvements and alternative applications for the machines, one of which appears in Figure 9.

Endowment Update 03 Q5.qxd 1/22/04 11:41 AM Page 24 Management and Since 1975, the Yale Corporation Investment Committee has been responsible for oversight of the Endowment, incorporating senior-Oversight level investment experience into portfolio policy formulation. The 6 Investment Committee consists of at least three Fellows of the Corporation and other persons who have particular investment expertise. The Committee meets quarterly, at which time members review asset allocation policies, Endowment performance, and strategies proposed by Investments Office staff. The Committee approves guidelines for investment of the Endowment portfolio, specifying investment objectives, spending policy, and approaches for the investment of each asset category. Eleven individuals currently sit on the Committee.

Investment Committee Charles D. Ellis ’59, Chairman Jane L. Mendillo ’80, ’84 m.b.a. Former Managing Partner Chief Investment Officer Greenwich Associates Wellesley College ..

G. Leonard Baker ’64 William I. Miller ’78 Managing Director Chairman Sutter Hill Ventures Irwin Financial Corporation Joshua Bekenstein ’80 Theodore P. Shen ’66 Managing Director Former Chairman Bain Capital DLJ Capital Markets Roland W. Betts ’68 John L. Thornton ’80 m.p.p.m.

Chairman Former President and Chelsea Piers Management, Inc. Co-Chief Operating Officer Goldman Sachs International Richard C. Levin ’74 ph.d.

President Douglas A. Warner iii ’68 Yale University Former Chairman of the Board J.P. Morgan Chase & Co.

Henry F. McCance ’64 President Greylock Management Endowment Update 03 Q5.qxd 1/22/04 11:41 AM Page 25 The Investments Office manages the Endowment and other University financial assets, and defines and implements the University’s borrowing strategies. Headed by the Chief Investment Officer, the Office currently consists of sixteen professionals.

Investments Office David F. Swensen ’80 ph.d. Randy Kim ’98 Chief Investment Officer Senior Associate Dean J. Takahashi ’80, ’83 m.p.p.m. Robert F. Wallace ’02 Senior Director Senior Associate Seth D. Alexander ’95 Celeste P. Benson Director Senior Portfolio Manager Alexander C. Banker Shuba V. Raghavan Director Senior Research Associate Alan S. Forman Kimberly B. Sargent ’00 Director Senior Financial Analyst Timothy R. Sullivan ’86 David B. Slifka ’01 Director Senior Financial Analyst Kenneth R. Miller ’71 Jay L. Kang ’02 Associate General Counsel Financial Analyst Michael E. Finnerty Daniel G. Kilpatrick ’03 Associate Director Financial Analyst View of Courtyard in Davenport College Endowment Update 03 Q5.qxd 1/22/04 11:41 AM Page 26 Circle of Kano Mitsunobu, 1561/5-1602/8, The Twenty-four Paragons of Filial Piety. Pair of six-fold screens, ink, color, gold, silver, and gold leaf on paper. The Leonard C. Hanna, Jr.

(b.a. 1913) Fund, Yale University Art Gallery.

Sources Photo Credits Much of the material in this publication is drawn Front cover: Strong Cohen Page 21: Yale Center for British Art from memoranda produced by the Investments Office for the Yale Corporation Investment Pages 1, 15-17, inside back cover: Page 22, two top photos: Yale University Library Committee. Other material comes from Yale’s Michael Marsland, Yale Office of Public Affairs financial records, Reports of the Treasurer, and Page 22 bottom, page 23 bottom: Beinecke Rare Reports of the President. Book and Manuscript Library Page 12: Jesse Goff Pages 7–13 Page 23 top: Elizabethan Club Page 13 top: Lufkin Industries, Inc.

Average educational institution asset allocations from Cambridge Associates. Design Page 20, back cover: Yale University Art Gallery Page 18 Strong Cohen The Endowment’s annual return for the ten years ending June 30, 2003 ranks in the top one percent of institutional funds as measured by the S E I Large Plan Universe.