Could the secret to Yale Chief Investment Officer David Swensen’s legendary success be Hush Puppies shoes?
Probably not. The Yale Investments Office’s most recent quarterly report, filed with the U.S. Securities and Exchange Commission this month, provides a rare peek into the University’s closely guarded investment holdings — but only a peek. The report, which the University is legally required to file four times a year, shows Yale’s stake in companies ranging from a pharmaceuticals manufacturer to the maker of Hush Puppies. Still, given that most of Yale’s assets are not held under its own name but under other managers, the filing offers no window into the bulk of Yale’s $16.3 billion endowment.
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“The report is not terribly indicative of anything,” said William Jarvis ’77, managing director of Commonfund Institute, a nonprofit consulting firm.
Like all institutional investors who control assets of at least $100 million, Swensen must disclose certain types of stocks and securities owned directly by Yale each quarter. According to the latest filing, Yale holds nearly $4 million, more than any other individual company listed, in shares of Biodel Inc., a company that recently developed a new method for injecting diabetes drugs. In fact, according to the company’s Yahoo! Finance profile, Yale is Biodel’s third largest institutional investor.
Biodel recently filed a drug application with the Food and Drug Administration to begin selling its technology, Biodel spokesman Seth Lewis said, adding that if its application is approved, the company’s share price will likely shoot up.
Still, $4 million is just “a drop in the bucket” compared to the rest of Yale’s endowment, said Richard Anderson, an endowment consultant at Hammond Associates.
The other securities Yale owns of individual companies, such as natural gas corporation Crosstex Energy and real estate developer Griffin Land and Nurseries, were donations to Yale that Swensen may be looking to sell, Anderson said. Yale also owns $829,000 of OpenTable, an online restaurant reservation provider that went public in May 2009.
And Yale also has $561,000 of Wolverine World Wide, a shoe manufacturer whose brands include not only Hush Puppies but also Patagonia, Hytest and Harley-Davidson footwear. In addition to its shoe brands, Wolverine World Wide operates a tannery that cures and sells raw pigskin and treats pigskin leather for shoes and other leather goods.
Though these holdings may not be representative of Yale’s endowment, the value of Yale’s stock holdings may reflect a recovery in some financial markets. The total value of securities Yale holds in its own name rebounded last quarter from its lowest point in at least eight years, rising from $5.2 million to $33.4 million. The rebound follows a huge drop-off from 2008 to 2009.
“For most of 2009, there was literally no activity,” Jarvis said. “These markets have now come back in a more subdued way. The market has come back somewhat, but no one would say that it’s robust.”
In the last quarter of 2009, the University owned 10 securities totaling $33.4 million, with the vast majority — 80 percent — of that money invested in three funds that rise and fall with the Standard & Poor 500 index, a group of the 500 largest companies, as well as with some international markets.
The largest overall stock holding reported in the filing was $23 million invested in SPDR Trust, an investment trust that owns shares of all 500 companies in the S&P 500. By mimicking the performance of the stock market, index funds and investment trusts such as SPDR allow institutional investors to make sure their stock portfolios perform as well as the stock market instead of forcing investors to put money in potentially risky individual companies, said Charles Ellis ’59, an investments consultant and a former member of the Yale Corporation Investments Committee.
If Yale wants to fix the proportion of its assets invested in the stock market, selling or buying index funds offers an easy and safe way to make sure the University’s portfolio does not drop too low or climb too high, Anderson said.
In the third quarter of 2009, Yale owned just $3.6 million of index funds in its own name, compared to just under $27 million in the quarter covered by the report. That may be because Yale’s allocation targets were disturbed during the economic meltdown last year, prompting Yale to stockpile index funds to rebalance, Jarvis said.
The SEC does not require the Investments Office to divulge any of its mutual funds or any so-called “alternative assets,” such as venture capital, private equity and real estate. And the billions in assets Yale owns indirectly through its investment managers do not appear in the report either.
“This is just an SEC requirement,” said David DeRosa, an adjunct professor of finance at the School of Management and the founder of an investment consulting firm. “Obviously, there’s a lot of stuff not in the report.”
Swensen did not respond to a request for comment. Neither did Kenneth Miller, Yale’s associate general counsel who filed the report.