Hbs Case Study Yale Endowment



MGT 827, Endowment Management


William N. Goetzmann & David F. Swensen

Room A30

Thursdays, 2:30 – 5:30 pm.




Contact Information



David Swensen

William Goetzmann

Devin Brosseau

Shuba V. Raghavan


230 Prospect St.

46 Hillhouse Avenue

46, Hillhouse Avenue


230 Prospect St.










Kim Stewart

Mary Ann Nelson




Description: The course will focus on the process of endowment management and the specific challenges facing the institutional funds manager. These include evaluating the role of the endowment, portfolio choice, manager choice, socially responsible investing and alternative asset class investing.

Prerequisites: Core Finance is required for the course and Investment Management is preferred.

Course Materials: There is a lot of reading for this class. The reading will form the basis for class discussion. You are expected to be prepared for both case discussions and reading. Since the books are expensive, you may wish to share costs with group members. Some of the books are available as pdf files to download and the others have been linked via www.bn.com but that does not imply you must use them.

Other Resources: The Ibbotson Analyzer, Optimizer and Attribution software is available via the Citrix network.  It will be useful for two of the cases.


Course Requirements


30%Three critical reviews (approximately 3 pages, double-spaced) describing and evaluating the market opportunities and investment approaches of guest speakers.


30%Present one case during the term in a group.


40%10-15 pages (double-spaced) discussing approved final investment topic, due on May 2nd, 2002. Class participation.


Core Readings





  1. Adams, Patricia and Probe International, Odious Debts, Earthscan, 1991.
  2. Douglas, Brian and Todd Harmening, Comparative Financial Statistics for Small Private Four-Year Institutions, Fiscal Year 1998, NACUBO, 1999.
  3. Douglas, Brian and Todd Harmening, Comparative Financial Statistics for Small Public Four-Year Institutions, Fiscal Year 1998, NACUBO, 1999.
  4. Frances et al., A Chart Book of Trends Affecting Higher Education Finance: 1960 -1990, The Common Fund, 1992.
  5. Good, Walter and Roy Hermansen, Index Your Way to Investment Success, New York Institute of Finance, 1998.
  6. Gompers, Paul and Josh Lerner, The Venture Capital Cycle, The MIT Press, 1999.
  7. Grinold, Richard and Ronald Kahn, Active Portfolio Management, Probus, 1999.
  8. Hutton et al, The Growth in College Endowments: 1960 - 1990, The Common Fund, 1993.
  9. Lederman, Jess and Robert A. Klein (Editor), Hedge Funds: Investment and Portfolio Strategies for the Institutional Investor, McGraw Hill, 1995.
  10. Shiller, Robert J., Irrational Exuberance, Princeton University Press, 2000.
  11. Simon, John G., Charles W. Powers and John Gunneman, The Ethical Investor, Yale University Press, 1972.
  12. Swensen, David, Pioneering Portfolio Management, The Free Press, 2000.
  13. Williamson, J. Peter, Funds for the Future: College Endowment Management for the 1990's, The Common Fund, 1993.



  1. Franklin, Benjamin, “The Last Will and Testament of Benjamin Franklin”.(In packet)
  2. Brinson, Hood, Beebower, 1986, “Determinants of Portfolio Preference”, Financial Analysts Journal, 42(4), 39-44.
  3. Brinson, Hood, Beebower, 1991, “Determinants of Portfolio Preference II: An Update,” Financial Analysts Journal, May/June 1991.
  4. Brown, Stephen J., William N. Goetzmann and Roger G. Ibbotson, 1999, "Offshore Hedge Funds, Survival and Performance," The Journal of Business, 72(1), 91-117.
  5. Brown, Stephen J.  William N. Goetzmann and Jamers Park, 2001, "Conditions for Survival: Changing Risk and the Performance of Hedge Fund Managers and CTA's," Forthcoming, The Journal of Finance.
  6. Cochrane, John, "The Risk and Return of Venture Capital," NBER Working Paper, 2001.
  7. Green, Constance McLaughlin, Eli Whitney and the Birth of American Technology, 1- 96 Little, Brown, 1956. (In packet)
  8. Fenn, George W. and Nellie Liang, 1995, "The Economics of the Private Equity Market," Board of Governors of the Federal Reserve System.(In packet)
  9. Gatev, Evan, William N. Goetzmann andK. Geert Rouwenhorst, 1999, “Pairs Trading.”
  10. Goetzmann, William N., 2000, "Democracy Before Debt," NYT ad.
  11. Goetzmann, William N., Roger G. Ibbotson and Liang Peng, 2000, “A New Historical Database for the NYSE 1815 to 1925: Performance and Predictability”, Working Paper, International Center for Finance, Yale School of Management.
  12. Goetzmann, William N., Jonathan Ingersoll, Jr. and Stephen A. Ross, 1999, "High Water Marks," Working Paper, International Center for Finance, Yale School of Management.
  13. Goetzmann, William, Lingfeng Li and K. Geert Rouwenhorst, 2001, “Long Term Global Market Corellations,” ICF working paper.
  14. Goetzmann, William N., Matthew Spiegel and Andrey Ukhov, “Modelling and Measuring Russian Corporate Governance,”Working paper ICF.
  15. Gompers, Paul A. and Andrew Metrick, 1998, "Institutional Investors and Equity Prices," Working Paper, International Center for Finance, Yale School of Management.
  16. Grantham, Jeremy, 1997, “Everything I Know about the Stock Market in 30 Minutes,” Speech at American Plus Meeting, June 17th, 1997.
  17. Hall, J. Parker, 1949, "Current Tendencies in College Investments," Journal of Finance, 4(2) June, 129-139. (In packet)
  18. Hansmann, Henry, 1990, "Why Do Universities Have Endowments?" Journal of Legal Studies, 19(1), 3-34. (In packet)
  19. Francis, Jack and Roger G. Ibbotson, 2001, “Empirical Risk-Return Analysis of Real Estate Investments in the U.S.: 1972-1999.
  20. Ibbotson, Roger G. and Kaplan Paul D., 2000, “Does Asset Allocation Policy Explain 40, 90 or 100 Percent of Performance?” Financial Analysts Journal, Jan/Feb 2000.
  21. Jorion, Philippe and William N. Goetzmann, 1999, "Global Stock Markets in the Twentieth Century," Journal of Finance, 54(3), 953-980. (In packet)
  22. Mathon de la Cour, Charles-Joseph, 1784, "The Testament of M. Fortuné Ricard," in translation. (In packet)
  23. Merton, Robert C., 1991, "Optimal Investment Strategies for University Endowment Funds," National Bureau of Economic Research Working Paper Series, #3820.
  24. Moskowitz, Toby and Annette Vissing-Jorgensen, 2000, “The Private Equity Premium Puzzle,” University of Chicago Working Paper.
  25. Oster, Sharon, 2001, "The Effect of University Endowment Growth on Giving: Is There Evidence of Crowding Out?" Yale School of Management Working Paper. (In packet)
  26. Peng, Liang, 2001, “Building a Venture Capital Index,” ICF working paper.
  27. Mitchell, Mark andTodd Pulvino, (2001) “Characteristics of Risk and Return in Risk Arbitrage”
  28. Rose-Ackerman, Susan, 1996, "Altruism, Nonprofits and Economic Theory," Journal of Economic Literature, 34(2) June, 701-728. (In packet)
  29. Sharpe, William F., 1992, "Asset Allocation: Management Style and Performance Measurement," Journal of Portfolio Management, Winter, 7-19. (in packet)
  30. Shiller, Robert J., 2001, "Bubbles, Human Judgment, and Expert Opinion," Yale University Working Paper. (In packet)
  31. Spitz, William et al, 1994, "Endowment Planning: A Real-Life Example," Journal of Portfolio Management, 20(3) Spring, 30-38. (In packet)
  32. Teoh, Siew-Hong, Ivo Welch, and Paul Wazzan. 1999, "The Effect of Socially Activist Investment Policies on the Financial Markets: Evidence from the South African Boycott," Journal of Business, 72-1 Jan., 35-90.
  33. Thaler, Richard and Peter Williamson, 1994, "College and University Endowment Funds: Why Not 100% Equities," Journal of Portfolio Management, 21(1) Fall, 27-37. (In packet)
  34. Tobin, James, 1974, “What is Permanent Endowment Income?” American Economic Review, 64(2), 427-432.





Class Schedule



January 17

Basics of Asset Allocation: Portfolio Choice



Brinson, Hood and Beebauer (1986, 1991)

Ibbotson and Kaplan (2000)

Swensen Chapters 4 – 6



January 24

Endowments Defined



Mathon de la Cour (1784)
Rose-Ackerman (1996)
Hansmann (1990)
Swensen (2000) Chapters 1 - 3
Oster (2001)

CASE DISCUSSION: “Rivermore College” use Ibbotson Optimizer


January 31

Investment and Spending Goals



Spitz et al. (1994)

Tobin (1974)

Merton (1991)quicklook!

Hutton et al, (1993)

Hall (1949)
Frances et al. (1992)
Douglas, Brian and Todd Harmening (1999 a&b)

Thaler and Williamson (1994)

CASE DISCUSSION: Benjamin Franklin Bequest


February 7

Manager Selection, Compensation and Evaluation


Swensen (2000) Chapters 9 - 11

Grinold and Kahn (1999) Skip the technical appendices.

Focus on information ratio
Sharpe (1992)

Ibbotson Attribution Software

CASE DISCUSSION: “Oxford Associates”


February 14

Marketable Securities: Domestic Equities




Jeremy Grantham, Grantham Mayo van Otterloo

Swensen Chapter 7

Grantham (1997)

Goetzmann, Ibbotoson and Peng (2000)

Gompers and Metrick (1998)


February 21

Marketable Securities: Foreign Equities




Antoine van Agtmael, Emerging Markets Management

Goetzmann and Jorion (1998 & 1997)

Goetzmann, Li and Rouwenhorst (2001)

Goetzmann, Spiegel and Ukhov (2002)


February 28

Simulation and Optimization with Alternative Assets




Carl Schecter, Managing Director: Risk ArbitrageNomura Securities International

Swensen (2000) pp. 204 - 216

Lederman, Klein (1995)

Brown, Goetzmann and Ibbotson (1999)

Brown, Goetzmann and Park (2002)

Goetzmann, Ingersoll and Ross (1999)


March 28

Alternative Assets:Absolute Return





Reading Gatev, Goetzmann and Rouwenhorst (1999)

Swensen Chapter 8

CASE DISCUSSION: “Foote School Endowment Case”



April 4

Alternative Assets:Venture Capital & Private Equity




James Nahirny, Bain Capital

Cochrane, John (2001)

Peng (2001)

Gompers, Lerner (1999)

Swensen (2000) pp. 216-247

Moskowitz, Vissing-Jorgensen (2000)

Fenn and Liang (1995)



April 11

Alternative Assets: Leveraged Buyouts




Dan O’Connell, Vestar Partners

Mitchell and Pulvino, (2001) “Characteristics of Risk and Return in Risk Arbitrage

CASE DISCUSSION: Pleiades Capital

Sunrise Medical Bank Book Executive Summary.pdf

Sunrise Medical Investment Committee Memo.pdf

Sunrise Medical Offer to Purchase.pdf


April 18

Alternative Assets: Real Estate




Chip Davidson, Brookdale Investors

Francis Jack and Roger Ibbotson, 2001

Swensen (2000) pp. 216-224

CASE DISCUSSION:HBS Case “Yale Investment Office (2000)”

April 25

Socially Responsible Investing



Simon et. al. (1971)
Teoh et al. (1999)
Goetzmann Op Ed (2000)
Adams, Patricia and Probe International (1991)



CASE DISCUSSION: HBS Case “Jesse and Smith Noyes Foundation”

May 2








At Harvard, the loss is the biggest percentage decline in 40 years and has prompted a review of how it manages its money and allocates assets. Jane Mendillo, who inherited a long-term portfolio when she took over the school’s endowment on July 1, 2008, intends to manage more of the school’s assets directly instead of using outside money managers and to hire additional people to oversee the management by outsiders.

In her letter describing the dismal results for the year ended June 30, Ms. Mendillo said she was adding a chief operating officer as part of this initiative.

Although other endowments at major universities suffered declines, many did better than Harvard and Yale, which have been known over the years for their investing prowess. The University of Pennsylvania, for example, was down 15.7 percent. A survey of foundations and endowments with assets of more than $1 billion by Wilshire Trust Universe Comparison Service found an average decline of 17 percent in fiscal 2009.

While Harvard aims to outperform, it also establishes a policy portfolio with a benchmark index for each asset class. Weighting its assets in each category and using those benchmarks, Harvard underperformed its policy portfolio by 2.1 percent.

Of six investment classes, four failed to meet their benchmarks. In a couple of cases the shortfall was sharp. Harvard’s private equity investments declined by 31.6 percent, compared with a benchmark loss of 23.9 percent. Absolute returns, more generally called hedge funds, fell 18.6 percent, compared with a 13.2 percent decline for the index. Harvard’s public equities did marginally better than the market, as did its real assets.

Yale said that the publicly traded portion of its portfolio did not decline further from December through June, but that the illiquid portions in private equity and real estate continued to sag.

Harvard had a large share of assets in private equity, about 13 percent of its total as recently as February.

In good times these private funds return money as deals are completed. In the recent financial upheaval, not only did the returns dry up but the funds required investors like Harvard to meet their commitments to add new money, creating a cash squeeze.

Bringing more assets under internal management is intended to give the Harvard endowment more control and increase transparency. The endowment aims to increase its cash position and to reduce its allocation to private equity and other funds that lock up money for significant periods of time.

But adding highly paid money managers may also prompt questions about how much compensation is appropriate, a sticky subject for the endowment in years past.

Although many of Harvard’s investments predate her arrival, Ms. Mendillo will be under pressure to turn things around quickly. The university has curtailed a planned expansion and made numerous other cutbacks because of its financial decline.

Harvard had been relying on the endowment for roughly one-third of its annual budget, and now plans to reduce that portion somewhat.

The Yale endowment is led by David F. Swensen, who has advocated aggressive use of alterative investments like private equity and hedge funds. At the end of fiscal 2008, Yale continued to turn in the best 10-year performance with an average annualized gain of 16.3 percent, which was followed by Harvard with 13.8 percent.

Harvard’s 10-year average annualized return has now fallen to 8.9 percent. That remains well above its policy portfolio of 4.5 percent.

One issue that may stir interest amid cutbacks on campus is whether Ms. Mendillo, or any Harvard managers whose investments did well, receives a bonus. There has been conflict over the years about whether Harvard’s endowment should pay its managers the kind of bonuses that are typical of Wall Street.

Seeming to anticipate this, Ms. Mendillo took pains in her letter to explain the endowment’s compensation philosophy, noting that a manager’s compensation was determined by measuring performance against a benchmark in a way that aligned his or her interest with that of the university The school also has a clawback provision, which requires a manager to perform well over several years to justify a big bonus for a single year.

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