First-quarter declines show little about endowment performance

The share prices of all the University’s index funds and public companies included in both regulatory reports the Yale Investments Office filed in the past two quarters declined by 10 percent to 30 percent between June 30 and Sept. 30 — a period defined by volatility in global markets. But financial experts say the change to a tiny fraction of Yale’s holdings shows little about the state of the endowment as a whole.

The University’s first-quarter Form 13F — a document released by Yale on Monday that the Securities and Exchange Commission requires of all institutional investment managers who oversee more than $100 million in public equity securities — does not capture the overall performance of the University’s $19.4 billion endowment because it discloses such a small portion of Yale’s investments, both legal experts with knowledge of SEC regulations and educational endowment experts said. Mark Radke, a partner with the Washington, D.C.-based Arent Fox law firm, said the routine filing is not intended to monitor the investments of institutional managers such as Yale’s Chief Investment Officer David Swensen, but rather exists to help public companies better understand who their largest shareholders are.

Though the report showed a decline in the value of a small portion of Yale’s investments, the University’s endowment has been on the upswing over the past two years. After reporting the worst endowment performance in the Ivy League during fiscal year 2010, Yale posted an impressive 21.9 percent return on its investments in fiscal year 2011.

Institutional investment managers must only list 13F investments on the quarterly SEC report, most of which are public equity securities. This means that other types of investments — such as hedge funds, private equity and real asset classes — are not included in the filing. Yale’s nontraditional investment strategy places an emphasis on alternative, illiquid assets, which include private equity, venture capital and real estate.

While the vast majority of Yale’s endowment investments are handled by managers external to the University, some of the investments included in the quarterly report are managed directly by Swensen. Index funds in particular, which the University buys and sells primarily to maintain its annual targeted asset allocation, are among these holdings. Investments not managed directly by Swensen include stocks which have restrictions attached to their sale and outside donations the Investments Office has not liquidated.

According to the report, Yale had about $1,600,000 invested in Approach Resources, Inc., an independent oil and natural gas company, $700,000 in Wolverine World Wide, Inc., a footwear manufacturer, and $800,000 in TiVO, Inc., the corporation behind the digital video recorder — all as of Sept. 30.

The iShares MSCI Emerging Markets Index — an index fund that aims to imitate the performance of securities in global emerging markets — saw the value of its shares fall by roughly 25 percent in the latest fiscal quarter. Yale ultimately increased the number of shares it owns in the iShares MSCI Emerging Markets Index by roughly 50 percent during that period, and the University’s investment in the fund was about $84 million as of September 30.

Radke, who specializes in defending clients in SEC enforcement proceedings, said the 13F requirement came about as part of amendments made to the Securities Exchange Act of 1934 under the Williams Act of 1968. Section 13F focuses on the investments of managers overseeing long-term security holdings in large portfolios.

The value of all investments in the latest quarterly report totals roughly $260 million, or roughly 1 percent of what Yale’s endowment was worth as of June 30.

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