Canadian Investment Review

Doing the Yale Model ETF-style?

Written by Caroline Cakebread on Thursday, March 28th, 2013 at 9:18 am

story_images_yale-bulldogBy far, my favourite story on the exchange-traded fund (ETF) scene this week comes from Seeking Alpha, where blogger Brian Abbott spends time figuring out a way to replicate the Yale Model using ETFs. Made famous by Yale Endowment’s chief investment officer, David Swensen’s 2000 book, Pioneering Portfolio Management, the model relies heavily on a fundamental switch away from traditional stocks and bonds and into alternatives such as hedge funds, private equity and real estate.

The strategy made Swensen a star and the Yale Endowment a model for other institutional investors to follow. But 2008 wasn’t kind to Yale—in that year, it posted a massive 30% loss, driven mainly by private equity investments that forced the university to cut $150 million in spending. Yale has bounced back somewhat since 2008, and Swensen continues to remain a dominant figure in the investment landscape. Abbott’s attempt to create an ETF mirror of the Yale Model is particularly interesting—plan sponsors have long been trying to find transparent and lower-cost ways to access the very alternatives that are a staple of the Swensen model. Finding accessible ways to invest in alternatives, however, is tough for pension funds, and often money is left on the table because there is simply no place to put those desired allocations.

So could ETFs be a good route? Abbott gives it a try. Here is how he allocated in an effort to replicate the Yale Model ETF-style:

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