2008 yale endowment report

2008The Yale Endowment

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Endowment Highlights

Fiscal Year

2008 2007 2006 2005 2004

Market Value (in millions) $22,869.7 $22,530.2 $18,030.6 $15,224.9 $12,747.2Return 4.5% 28.0% 22.9% 22.3% 19.4%

Spending (in millions) $ 849.9 $ 684.0 $ 616.0 $ 567.0 $ 502.0Operating Budget Revenues 2,280.2 2,075.0 1,932.0 1,768.0 1,630.8(in millions)Endowment Percentage 37.3% 33.0% 31.9% 32.2% 30.8%

Asset Allocation (as of June 30)

Absolute Return 25.1% 23.3% 23.3% 25.7% 26.1%Domestic Equity 10.1 11.0 11.6 14.1 14.8Fixed Income 4.0 4.0 3.8 4.9 7.4Foreign Equity 15.2 14.1 14.6 13.7 14.8Private Equity 20.2 18.7 16.4 14.8 14.5Real Assets 29.3 27.1 27.8 25.0 18.8Cash -3.9 1.9 2.5 1.9 3.5

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01950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Endowment Market Value 1950–2008

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Contents

1. Introduction 22. The Yale Endowment 43. Investment Policy 54. Spending Policy 155. Investment Performance 206. Management and Oversight 22

Front cover:Wall carving from west façade, SterlingMemorial Library.

Right:Saybrook Court, in Saybrook College,one of the twelve residential colleges.

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Yale’s Endowment generated solid relative results in fiscal year 2008, asinvestment returns of 4.5 percent produced investment gains of $1.0billion.

Over the past ten years, the Endowment grew from $6.6 billion to$22.9 billion. With annual net investment returns of 16.3 percent, theEndowment’s performance exceeded its benchmark and outpaced institu-tional fund indices. The Yale Endowment’s twenty-year record of 15.9percent per annum produced a 2008 Endowment value of more than tentimes that of 1988. Yale’s superb long-term record resulted from disci-plined and diversified asset allocation policies, superior active manage-ment results, and strong capital market returns.

Spending from Endowment grew during the last decade from$218 million to $850 million, an annual growth rate of approximately15 percent. On a relative basis, Endowment contributions expanded from18 percent of total revenues in fiscal 1998 to 37 percent in fiscal 2008.Next year, spending will amount to $1.16 billion, or 44 percent of project-ed revenues. Yale’s spending and investment policies have provided hand-some levels of cash flow to the operating budget for current scholarswhile preserving Endowment purchasing power for future generations.

Introduction

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1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 20050

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Endowment Growth Outpaces Inflation 1950–2008

1950 Endowment Inflated Post-1950 Endowment Gifts Inflated Endowment Market Value

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As a matter of long-standing practice, Yale releases information on the performance ofits Endowment only following the close of the University’s June 30 fiscal year. Becausethe current economic crisis altered the financial landscape in dramatic fashion, Yaledecided to release interim performance information to provide context for evaluating theUniversity’s investment, spending, and borrowing activities.

On December 16, President Levin delivered a message to Yale’s faculty and sta≠ thatstated: “Our best estimate of the Endowment’s value today is $17 billion, a decline of 25percent since June 30, 2008.” President Levin’s estimate incorporated returns on mar-ketable securities through October 31 and projections of writedowns on illiquid assets.Based on marketable security returns through December 31 and illiquid asset projections,the estimated investment decline remains at 25 percent.

Even though the significant decline in Yale’s Endowment disappoints, it should notsurprise. If a portfolio produces gains of 41 percent (as it did in the year ended June 30,2000) and 28 percent (as it did in the year ended June 30, 2007), the possibility ofsu≠ering the symmetry of double-digit losses should be anticipated. That said, the factthat Yale last su≠ered an investment loss two decades ago (0.2 percent in the year endedJune 30, 1988) makes the current decline in value all the more unwelcome.

Consider Yale’s estimated decline of 25 percent in the context of returns for stocksand bonds. For the six months ending December 31, 2008, the broad U.S. equity marketdeclined nearly 30 percent, developed foreign equity markets fell more than 36 percent,and emerging equity markets dropped more than 47 percent. Risky bonds provided nosafe haven as the high-yield market declined 25 percent. Only U.S. Treasury bonds pro-tected investor capital, returning just over 11 percent as investors sought the risk-freesecurity of government obligations.

Based on investment results in the current crisis, some skeptics questioned theUniversity’s fundamental approach to portfolio management, which rests on the princi-ples of equity orientation and diversification. These principles continue to supportthoughtful and carefully considered management of Yale’s Endowment.

Equity orientation makes sense for investors with long time horizons. In the midst offinancial crises, some argue for higher allocations to risk-free assets, no doubt wishingafter-the-fact for the now unattainable before-the-fact protection. Yet those who arguefor greater protection against financial trauma ignore the opportunity costs of maintain-ing a substantial allocation to fixed-income assets. Recall that in the ten years endingJune 30, 2008, the Yale Endowment returned 16.3 percent per year in contrast to 3.6 per-cent annually for U.S. stocks and 5.7 percent annually for U.S. bonds.

Diversification, called a free lunch by Nobel laureate Harry Markowitz, allows con-struction of portfolios with superior risk and return characteristics. In the midst of acapital market dislocation, investors hoping for the protection provided by a diversifiedportfolio of assets frequently express disappointment at the crisis-induced tendency ofrisky assets to move together. The correlations between risky asset classes move towardone during periods when investors dump holdings of risky assets of all types to fundpurchases of risk-free U.S. Treasury bonds. In a binary world where only risk and safetymatter, otherwise dissimilar risky assets behave similarly. In the Crash of 1987 and ltcmcrisis in 1998, flights to quality led to temporary market disruptions that caused diver-sification to lose its power. After the panics subsided, diversification once again mat-tered, as fundamental drivers of return determined results, not the overriding concernwith safety. The crisis of 2008 di≠ers from the crises of 1987 and 1998 in breadth, depth,and intensity. Yet, after the current crisis passes, prudent investors will reap the benefitsof a well-diversified portfolio.

While the decline in Endowment value in the current financial crisis caused someobservers to question the tenets of Yale’s investment strategy, when evaluated with atime horizon appropriate for a long-term investor, the University’s equity-oriented, well-diversified portfolio continues to provide the best foundation for future investment suc-cess. After the financial trauma recedes, Yale will once again benefit from the prospect ofsuperior returns generated with prudent levels of risk.

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Calendar-Year 2008Update on EndowmentPerformance


Totaling $22.9 billion on June 30, 2008, the Yale Endowment containsthousands of funds with a variety of designated purposes and restrictions.Approximately four-fifths of funds constitute true endowment, giftsrestricted by donors to provide long-term funding for designated pur-poses. The remaining one-fifth represent quasi-endowment, monies thatthe Yale Corporation chooses to invest and treat as endowment.

Donors frequently specify a particular purpose for gifts, creatingendowments to fund professorships, teaching, and lectureships (23 per-cent), scholarships, fellowships, and prizes (18 percent), maintenance(4 percent), books (3 percent) and miscellaneous specific purposes (26percent). Twenty-six percent of funds are unrestricted. Twenty-five per-cent of the Endowment benefits the overall University, with remainingfunds focused on specific units, including the Faculty of Arts and Sciences(38 percent), the professional schools (23 percent), the library (8 per-cent), and other entities (6 percent).

Although distinct in purpose or restriction, Endowment funds arecommingled in an investment pool and tracked with unit accountingmuch like a large mutual fund. Endowment gifts of cash, securities, orproperty are valued and exchanged for units that represent a claim on aportion of the whole investment portfolio.

In fiscal 2008, the Endowment provided $850 million, or 37 per-cent, of the University’s $2,280.2 million operating income. Other majorsources of revenues were grants and contracts of $561 million (25 per-cent), medical services of $373 million (16 percent), net tuition, room,and board of $246 million (11 percent), other income and transfers of$105 million (5 percent), gifts of $92 million (4 percent), and otherinvestment income of $54 million (2 percent).

The Yale Endowment

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Endowment Fund Allocation

Fiscal Year 2008

Professorships

Miscellaneous

Specific Purposes

MaintenanceBooks

Scholarships

UnrestrictedEndowment

Grants & Contracts

Tuition, Room, Board

Medical Services

Gifts

Other Investment IncomeOther Income

Operating Budget Revenue

Fiscal Year 2008


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Yale’s portfolio is structured using a combination of academic theory andinformed market judgment. The theoretical framework relies on mean-variance analysis, an approach developed by Nobel laureates James Tobinand Harry Markowitz, both of whom conducted work on this importantportfolio management tool at Yale’s Cowles Foundation. Using statisticaltechniques to combine expected returns, variances, and covariances ofinvestment assets, Yale employs mean-variance analysis to estimateexpected risk and return profiles of various asset allocation alternativesand to test sensitivity of results to changes in input assumptions.

Because investment management involves as much art as science,qualitative considerations play an extremely important role in portfoliodecisions. The definition of an asset class is quite subjective, requiringprecise distinctions where none exist. Returns and correlations are di∞-cult to forecast. Historical data provide a guide, but must be modified torecognize structural changes and compensate for anomalous periods.Quantitative measures have di∞culty incorporating factors such as mar-ket liquidity or the influence of significant, low-probability events. Inspite of the operational challenges, the rigor required in conductingmean-variance analysis brings an important perspective to the assetallocation process.

The combination of quantitative analysis and market judgmentemployed by Yale produces the following portfolio:

June 2008 June 2008Asset Class Actual Target

Absolute Return 25.1% 21.0%Domestic Equity 10.1 10.0Fixed Income 4.0 4.0Foreign Equity 15.2 15.0Private Equity 20.2 21.0Real Assets 29.3 29.0Cash -3.9 0.0

Investment Policy

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The target mix of assets produces an expected real (after inflation) long-term growth rate of 6.4 percent with a risk (standard deviation ofreturns) of 12.7 percent. Because actual holdings di≠er from target levels,the actual allocation produces a portfolio expected to grow at 6.5 percentwith a risk of 12.8 percent. The University’s measure of inflation is basedon a basket of goods and services specific to higher education that tendsto exceed the Consumer Price Index by approximately one percentagepoint.

At its June 2008 meeting, Yale’s Investment Committee adopteda number of changes in the University’s policy portfolio allocations. TheCommittee approved an increase in the private equity target from 19 per-cent to 21 percent to accommodate organic growth in private equity expo-sure as a percentage of the Endowment. For similar reasons, the Univer-sity increased the real assets allocation from 28 percent to 29 percent.The increases in the illiquid asset classes were funded by a 2 percentagepoint decrease in the absolute return target allocation to 21 percent, anda 1 percentage point decrease in the domestic equity target allocation to10 percent.

The need to provide resources for current operations as well aspreserve purchasing power of assets dictates investing for high returns,causing the Endowment to be biased toward equity. In addition, theUniversity’s vulnerability to inflation further directs the Endowment awayfrom fixed income and toward equity instruments. Hence, 96 percent ofthe Endowment is targeted for investment in assets expected to produceequity-like returns, through holdings of domestic and international secu-rities, real assets, and private equity.

Over the past two decades, Yale reduced dramatically theEndowment’s dependence on domestic marketable securities by reallocat-ing assets to nontraditional asset classes. In 1988, nearly 75 percent of theEndowment was committed to U.S. stocks, bonds, and cash. Today, tar-get allocations call for 14 percent in domestic marketable securities, whilethe diversifying assets of foreign equity, private equity, absolute returnstrategies, and real assets dominate the Endowment, representing 86 per-cent of the target portfolio.

The heavy allocation to nontraditional asset classes stems fromtheir return potential and diversifying power. Today’s actual and targetportfolios have significantly higher expected returns and lower volatilitythan the 1988 portfolio. Alternative assets, by their very nature, tend to beless e∞ciently priced than traditional marketable securities, providing anopportunity to exploit market ine∞ciencies through active management.The Endowment’s long time horizon is well suited to exploiting illiquid,less e∞cient markets such as venture capital, leveraged buyouts, oil andgas, timber, and real estate.

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1920Yale College and She∞eld Scientific Schoolstudent body enrollment climbs to 3,000,a growth of 50% since 1900, straining cam-pus facilities and the quality of student life.An increasing number of students live o≠campus.

1923For the first time, Yale sets a limit on thenumber of freshmen admitted each year,attempting to hold the total at 850.

1925President James Rowland Angell proposesthat the Yale Corporation consider estab-lishing a Residential College Plan “some-what resembling the English colleges” ofOxford and Cambridge.

1928Yale Corporation fellow Samuel H. Fishersecures the agreement of Edward S.Harkness, b.a. 1897, to finance the buildingof residential colleges at Yale with a com-mitment of about $12 million.

1930Construction begins on the first colleges:Calhoun, Davenport, Jonathan Edwards,Pierson, and Trumbull.

1931President Angell appoints the first Masters.

1933The Classes of 1934, 1935, and 1936enter the first seven residential colleges:Branford and Saybrook (both adaptedfrom Memorial Quadrangle), JonathanEdwards (on the site of two existing dor-mitories), Pierson and Davenport (newlybuilt), Trumbull (new building displacingan old gym), and Calhoun (replacing sev-eral Divinity School buildings).

1933Intramural competition for the Tyng Cupbegins, pitting residential colleges againstone another.

1934The eighth college, Berkeley, replacing theold Berkeley Oval, opens for residents.

1935The ninth college, Timothy Dwight, beginsoperations.

1940The tenth college, Silliman, admits its firststudents.

1952The creation of Sophomore Seminars,which later evolve into Residential CollegeSeminars with small classes of ten studentseach, allows “the residential colleges to playa functional role in the educational systemas well as in the social life of the under-graduates” (from President A. WhitneyGriswold’s 1955-56 Report of thePresident).

1953Yale institutes a lottery system for assign-ing students to the colleges to ensure diver-sity and guarantee that each more closelyresembles a cross-section of the entirestudent body. Before this date, studentsranked colleges in order of preference andoften had to be content with their secondor third choice.

1961Yale lays cornerstones for the eleventh andtwelfth residential colleges, Morse and EzraStiles, on land acquired through gifts fromJohn Hay Whitney, b.a. 1926.

1963The colleges install Deans to provide aca-demic counseling and to oversee studentlife.

1969The first women (a group of 500) enterYale College. Rejecting a suggestion to con-vert Trumbull College for exclusive femaleoccupancy, all of Yale’s colleges becomeco-educational.

1975Plans to build two new colleges to accom-modate enrollment increases are cancelledwhen the city of New Haven opposes theexpansion.

1998Yale completes the construction of a newresidence facility (“swing space”) to pro-vide temporary quarters for one residentialcollege per year during a round of renova-tions of all the colleges, starting withBerkeley College in 1998.

Yale’s Residential Colleges—A Timeline

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The Tyng Cup.

Calhoun College Master’s house.


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Yale’s six asset classes are defined by di≠erences in their expected responseto economic conditions, such as price inflation or changes in interestrates, and are weighted in the Endowment portfolio by considering risk-adjusted returns and correlations. The University combines the assetclasses in such a way as to provide the highest expected return for a givenlevel of risk.

In July 1990, Yale became the first institutional investor to pursueabsolute return strategies as a distinct asset class, beginning with a targetallocation of 15 percent. Designed to provide significant diversification tothe Endowment, absolute return investments seek to generate high long-term real returns by exploiting market ine∞ciencies. Approximately halfof the portfolio is dedicated to event-driven strategies, which rely on avery specific corporate event, such as a merger, spin-o≠, or bankruptcyrestructuring to achieve a target price. The other half of the portfolio con-tains value-driven strategies, which involve hedged positions in assets orsecurities that diverge from underlying economic value. Today, theabsolute return portfolio is targeted to be 21 percent of the Endowment,below the average educational institution’s allocation of 21.7 percent tosuch strategies. Absolute return strategies are expected to generate realreturns of 6.0 percent with risk levels of 10.0 percent for event-drivenstrategies and 15.0 percent for value-driven strategies.

Unlike traditional marketable securities, absolute return invest-ments have historically provided returns largely independent of overallmarket moves. Over the past ten years, the portfolio exceeded expecta-tions, returning 12.0 percent per year with low correlation to domesticstock and bond markets.

An important attribute of Yale’s investment strategy concerns thealignment of interests between investors and investment managers. Tothat end, absolute return accounts are structured with performance-relat-ed incentive fees, hurdle rates, and clawback provisions. In addition,managers invest significant sums alongside Yale, enabling the Universityto avoid many of the pitfalls of the principal-agent relationship.

Financial theory predicts that equity holdings will generate returns supe-rior to those of less risky assets such as bonds and cash. The predominantasset class in most U.S. institutional portfolios, domestic equity repre-sents a large, liquid, and heavily researched market. While the averageeducational institution invests 21.7 percent of assets in domestic equities,Yale’s target allocation to this asset class is only 10.0 percent. The domes-tic equity portfolio has an expected real return of 6.0 percent with a stan-dard deviation of 20.0 percent. The Wilshire 5000 Index serves as theportfolio benchmark.

Asset ClassCharacteristics

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Domestic Equity

Absolute Return


Despite recognizing that the U.S. equity market is highly e∞cient,Yale elects to pursue active management strategies, aspiring to outper-form the market index by a few percentage points annually. Becausesuperior stock selection provides the most consistent and reliable oppor-tunity for generating excess returns, the University favors managers withexceptional bottom-up fundamental research capabilities. Managerssearching for out-of-favor securities often find stocks that are cheap inrelation to current fundamental measures such as book value, earnings,or cash flow. Recognizing the di∞culty of outperforming the market on aconsistent basis, Yale searches for managers with high integrity, soundinvestment philosophies, strong track records, superior organizations,and sustainable competitive advantages.

Fixed income assets generate stable flows of income, providing greatercertainty of nominal cash flow than any other Endowment asset class.The bond portfolio exhibits a low covariance with other asset classes andserves as a hedge against financial accidents or periods of unanticipateddeflation. While educational institutions maintain a substantial allocationto fixed income instruments and cash, averaging 14.0 percent, Yale’starget allocation to fixed income constitutes only 4.0 percent of theEndowment. Bonds have an expected real return of 2.0 percent with riskof 10.0 percent. The Lehman Brothers 1-5 Year U.S. Treasury Index servesas the portfolio benchmark.

Yale is not particularly attracted to fixed income assets, as theyhave the lowest historical and expected returns of the six asset classescomprising the Endowment. In addition, the government bond market isarguably the most e∞ciently priced asset class, o≠ering few opportunitiesto add significant value through active management. Based on skepticismof active fixed income strategies and belief in the e∞cacy of a highlystructured approach to bond portfolio management, the InvestmentsO∞ce chooses to manage Endowment bonds internally. In spite of anaversion to market timing strategies, credit risk, and call options, Yalemanages to add value consistently in its management of the bondportfolio.

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Fixed Income

NBC Nightly News anchor Brian Williams speaks ata Morse College Master’s Tea.


During Yale’s tercentennial celebration,President Richard C. Levin remarked: “Theresidential college system is a major reasonwhy students choose to come to Yale and amajor reason why Yale College studentsreport greater satisfaction with their educa-tion than students at most peer institu-tions. Our residential system o≠ers its stu-dents both the intimacy of a small collegeenvironment and the vast resources of amajor research university.” President Levinechoed the sentiments of generations ofYale alumni when he described the residen-tial college system as “one of the gloriesof Yale.”

In the years following World War i,increasing undergraduate enrollment ledto crowded living conditions in theUniversity’s dormitories, forcing largenumbers of students to live o≠ campus.Concerned that the dispersion of the stu-dent body would weaken bonds within theYale community, the University sought aplan that would promote cohesion amongthe undergraduate classes. With theencouragement of longtime Yale benefactorEdward S. Harkness, b.a. 1897, Yaleo∞cials formulated a plan for ten residen-tial colleges that drew its inspiration fromthe college systems of Oxford andCambridge.

The plan called for each residential col-lege to occupy a plot roughly the size of acity block, with interconnected buildingsenclosing a courtyard. Each college wouldappoint a Master to supervise and guidestudent activities. In order to create tightlyknit communities, each college was tohouse only a few hundred students wholived in close proximity to faculty andenjoyed access to their own library, dininghall, common room, and other activityspaces.

In 1928, Harkness made a contributionof $12 million (the equivalent of over $200million today) for the purpose of imple-menting the residential college system.Harkness’s contribution allowed theUniversity to construct Yale’s first six resi-dential colleges and adapt existing build-ings to create another four. In time, stu-dents came to identify themselves not justas Elis, but as Berkeleyites, Saybrugians, orSillimanders.

Ever since the inauguration of the firstseven colleges in 1933, donor gifts ofendowed funds supported and enhancedresidential college life. Impressed by thesuccess of the residential college program,Harkness followed his initial gift with anadditional contribution of roughly $5 mil-lion to create an endowment to be “addedto the University’s General Funds, theincome of which is to be used over a rea-sonable period of time for Head Master’ssalaries and the Student Aid Fund.”

The residential college system—whichgrew to ten colleges by 1940 and twelve by1963—came to define the undergraduateYale experience. In addition to providing aclose community that structures social lifeat Yale College, residential colleges provideforums for learning. In 1936, the generouscontribution of Hendon Chubb, ph.b.1895, created the Hendon Chubb Fund,which brought distinguished professionalsin public life, science, and the arts to speakat the residential colleges. While Chubb’sgift focused originally on Timothy DwightCollege, a portion benefits all the colleges.These funds bring distinguished visitors toYale to lecture and interact with studentsduring informal sessions known asMaster’s Teas, which are hosted in collegeMasters’ living rooms. Remarkable speak-ers have graced the couches of Yale CollegeMasters over the years, including HarryTruman, Gerald Ford, Jimmy Carter,Ronald Reagan, Edward Heath, B.F.Skinner, Maya Angelou, Arthur Koestler,Margaret Marshall, John Kenneth

Galbraith, Robert Redford, and YevgenyYevtushenko.

A vital dimension in the development ofYale’s residential college system camethrough the generosity of one of theUniversity’s most enthusiastic supporters,Paul Mellon, b.a. 1929. In 1952, Mellonresponded to concerns expressed by somefaculty members that the residential col-leges were overly focused on social life atthe expense of educational pursuits. Anendowment established through Mellon’sOld Dominion Foundation provided fund-ing for small seminar courses to be o≠eredin each college. Today, the residential col-lege seminar program, which o≠ers twocourses per term in each residential college,allows students to explore topics outside ofYale College’s core curriculum. Class topicsare decided by a committee of students andgraduate a∞liates within each residentialcollege. The current academic listingsinclude college seminars such as GreatTrials of the Century, the Music of India,Bioethics and the Law, Forensic Science,and Writing Half-Hour TelevisionComedy.

Endowed Funding for Residential Colleges

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The implementation of a residential college planbenefited from the vision and generosity of EdwardS. Harkness, whose gifts in 1928 supported thebuilding of several colleges along with endowedprograms.

Hendon Chubb significantly enhanced the culturallife of the residential colleges by endowing theChubb Fellows program in 1936. Similar programshave followed suit, providing a steady flow ofprominent guests from the worlds of politics, busi-ness, and the arts who address students and engagein discussion programs.

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Paul Mellon’s support increased in sub-sequent years, with gifts in 1958 thatallowed the construction of two new col-leges, Ezra Stiles and Morse. At the sametime, Mellon financed the appointment ofresidential college Deans in all twelve ofthe colleges. Deans reside in each collegeand have day-to-day responsibilities for thesocial and academic development of stu-dents. Mellon’s funding also supports theScholars of the House program, whichallows one student in each college toreceive individual instruction in creativeendeavors or advanced scholarship.Endowments fund an abundance of aca-

demic programs and extracurricular activi-ties in Yale’s residential colleges. On thenon-academic side, the college intramuralsports program inspired a number ofendowment gifts. Examples include theWilliam and Martha Ford Fund, estab-lished in 1981 to support residential collegeintramurals, and the Paul HavilandMemorial Fund, established in 1935 to sup-port intramural golf.Long after they leave Yale, alumni con-

tinue to identify strongly with their college.One sign of this bond is the tradition ofphilanthropy by alumni on behalf of theirresidential colleges. Donors have givengenerously to establish additional Master’sTea and guest lecturer programs, visitingwriter programs, book collections, artsactivities, social functions, debates, con-tests, and prizes. Even students conductingresearch over the summer are supported ineach college by donors such as the friendsand family of John Bolt Morse, who in1992 established a travel fellowship for onestudent per year at Jonathan EdwardsCollege to study the fine arts.Yale’s great success with the residential

college system piqued the interest of otherAmerican institutions. In recent years, uni-versities seeking to improve the quality ofundergraduate student life have looked toYale as a model. In 1979, PrincetonUniversity’s Committee on UndergraduateResidential Life recommended the creationof five residential colleges for freshmen andsophomores. Princeton expanded that net-work in 2002, adding four-year residentialcolleges for a portion of the student body.

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Paul Mellon, who has supported a wide range of facilities and activities at his alma mater, had a majorimpact on the colleges. His support enabled Yale to build Ezra Stiles and Morse Colleges in the 1960s, inaddition to creating deanships and special teaching funds for the colleges.

Printing presses, along with pottery shops, exercise rooms, music rehearsal spaces, and a “buttery” orsnackbar, are among the many resources provided in the residential colleges. The press at JonathanEdwards College (above), shown following the renovation of 2007-2008, was founded in 1936.


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Investments in overseas markets expose the Endowment to the globaleconomy, providing substantial diversification along with opportunitiesto earn above-market returns through active management. Emergingmarkets, with their rapidly growing economies, are particularly intrigu-ing, causing Yale to target 5.0 percent of its portfolio to such opportuni-ties, just short of the 6.0 percent allocated to foreign developed equities.Yale dedicates 4.0 percent of the portfolio to opportunistic foreign posi-tions, with the expectation that holdings will be concentrated in marketsthat o≠er the most compelling long-term opportunities, particularlyChina and India. Yale’s foreign equity target allocation of 15.0 percentstands below the average endowment’s allocation of 20.3 percent.Expected real returns for emerging equities are 8.0 percent with a risklevel of 25.0 percent, while developed equities are expected to return 6.0percent with risk of 20.0 percent. The portfolio is measured against acomposite benchmark of (a) developed markets, measured by theMorgan Stanley Capital International (msci) Europe, Australasia, andFar East Index; (b) emerging markets, measured by the msci EmergingMarkets Index; and (c) opportunistic investments, measured by theHigher Education Price Index plus 8 percent.

Yale’s investment approach to foreign equities emphasizes activemanagement designed to uncover attractive opportunities and exploitmarket ine∞ciencies. As in the domestic equity portfolio, Yale favorsmanagers with strong bottom-up fundamental research capabilities.Capital allocation to individual managers takes into consideration thecountry allocation of the foreign equity portfolio, the degree of confi-dence Yale possesses in a manager, and the appropriate asset size for aparticular strategy. In addition, Yale attempts to exploit compellingundervaluations in countries, sectors, and styles by allocating additionalcapital and, perhaps, by hiring new managers to take advantage of theopportunities.

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Foreign Equity

The Dining Hall in Berkeley College.


Private equity o≠ers extremely attractive long-term risk-adjusted returncharacteristics, stemming from the University’s strong stable of value-added managers that exploit market ine∞ciencies. Yale’s private equityinvestments include participations in venture capital and leveraged buy-out partnerships. The University’s target allocation to private equity of21.0 percent far exceeds the 8.6 percent actual allocation of the averageeducational institution. In aggregate, the private equity portfolio isexpected to generate real returns of 11.2 percent with risk of 27.7 percent.

Yale’s private equity program, one of the first of its kind, isregarded as among the best in the institutional investment community,and the University is frequently cited as a role model by other investors.Since inception, private equity investments have generated a 30.9 percentannualized return to the University. The success of Yale’s program led to a1995 Harvard Business School case study—“Yale University InvestmentsO∞ce”—by Professors Josh Lerner and Jay Light. The popular case studywas updated in 1997, 2000, 2003, and again in 2006.

Yale’s private equity assets concentrate on partnerships with firmsthat emphasize a value-added approach to investing. Such firms workclosely with portfolio companies to create fundamentally more valuableentities, relying only secondarily on financial engineering to generatereturns. Investments are made with an eye toward long-term relation-ships—generally, a commitment is expected to be the first of several—and toward the close alignment of the interests of general and limitedpartners. Yale avoids funds sponsored by financial institutions because ofthe conflicts of interest and sta≠ instability inherent in such situations.

Private Equity

13Walkway between Morse and Ezra Stiles Colleges.


Real estate, oil and gas, and timberland share common characteristics:sensitivity to inflationary forces, high and visible current cash flow, andopportunity to exploit ine∞ciencies. Real asset investments provideattractive return prospects, excellent portfolio diversification, and a hedgeagainst unanticipated inflation. Yale’s 29.0 percent long-term policy allo-cation significantly exceeds the average endowment’s commitment of 13.7percent. Expected real returns are 6.0 percent with risk of 13.6 percent.

The real assets portfolio plays a meaningful role in theEndowment as a powerful diversifying tool and a generator of strongreturns. Real assets often provide relative stability to the Endowmentduring periods of public market turmoil. Pricing ine∞ciencies in the assetclass and opportunities to add value allow superior managers to generateexcess returns over a market cycle. Since inception in 1978 the portfoliohas returned 17.6 percent per annum.

The illiquid nature of real assets combined with the expensive andtime-consuming process of completing transactions creates a high hurdlefor casual investors. Real assets provide talented investment groups withthe opportunity to generate strong returns through savvy acquisitionsand managerial expertise. A critical component of Yale’s investment strat-egy is to create strong, long-term partnerships between the InvestmentsO∞ce and its investment managers. In the last decade, Yale played a criti-cal role in the development and growth of more than a dozen organiza-tions involved in the management of real assets.

Yale EducationalUniversity Institution Mean

Absolute Return 25.1% 21.7%Domestic Equity 10.1 21.7Fixed Income 4.0 12.1Foreign Equity 15.2 20.3Private Equity 20.2 8.6Real Assets 29.3 13.7Cash -3.9 1.9Data as of June 30, 2008

Real Assets

14

Asset Allocations


The spending rule is at the heart of fiscal discipline for an endowed insti-tution. Spending policies define an institution’s compromise between theconflicting goals of providing substantial support for current operationsand preserving purchasing power of Endowment assets. The spendingrule must be clearly defined and consistently applied for the concept ofbudget balance to have meaning.

The Endowment spending policy, which allocates Endowmentearnings to operations, balances the competing objectives of providing astable flow of income to the operating budget and protecting the realvalue of the Endowment over time. The spending policy manages thetrade-o≠ between these two objectives by using a long-term spendingrate target combined with a smoothing rule, which adjusts spending inany given year gradually in response to changes in Endowment marketvalue.

The target spending rate approved by the Yale Corporationcurrently stands at 5.25 percent. According to the smoothing rule,Endowment spending in a given year sums to 80 percent of the previousyear’s spending and 20 percent of the targeted long-term spending rateapplied to the market value two years prior. The spending amount deter-mined by the formula is adjusted for inflation and constrained so that thecalculated rate is at least 4.5 percent, and not more than 6.0 percent ofthe Endowment’s inflation-adjusted market value one year prior. Thesmoothing rule and the diversified nature of the Endowment mitigate theimpact of short-term market volatility on the flow of funds to supportYale’s operations.

Spending Policy

4

15

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 20050

$100

$200

$300

$400

$500

$600

$700

$800

$900

1950 Spending Inflated Spending from Post-1950 Endowment Gifts Inflated Actual Spending

Spending Growth Surpasses Inflation 1950–2008

Mill

ions


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The spending rule has two implications. First, by incorporatingthe previous year’s spending, the rule eliminates large fluctuations,enabling the University to plan for its operating budget needs. Over thelast twenty years, annual changes in spending have been a fourth asvolatile as annual changes in Endowment value. Second, by adjustingspending toward the long-term target spending level, the rule ensuresthat spending will be sensitive to fluctuating Endowment market values,providing stability in long-term purchasing power.

Despite the conservative nature of Yale’s spending policy, distribu-tions to the operating budget rose from $218 million in fiscal 1998 to$850 million in fiscal 2008. The University projects spending of $1.16billion from the Endowment in fiscal 2008, representing 44 percent ofrevenues.

16

A senior faculty member known as aMaster heads each residential college. TheMaster, whose primary responsibility is toensure the well-being of the college’s stu-dents, lives on the college’s premises, oftentakes meals with students, and overseesthe intellectual and social life of the resi-dential community. In the seventy-five-year history of the colleges, a number ofremarkable individuals have served asMasters, strongly enriching the quality ofundergraduate life.

The First Master

Jonathan Edwards College received the firstMastership in 1931, when Professor RobertDudley French, b.a. 1910, ph.d. 1920,began his twenty-three-year stewardship,one of the longest tenures of any Master.After graduating, French began teachingEnglish at his alma mater in 1915. Timemagazine reported: “In 1920 he took over aChaucer course, brushed up its fustiness,livened it, taught it well, increasing theenrollment from 30 to 300 in nine years.”His books on Chaucer and Shakespeare arestill used by students today. French’s con-tributions to pedagogy included coachingstudents in the arcane sounds of Yale’sfamous “Long Cheer.” As recalled by alum-nus Frank Gibson, b.a. 1949, in the YaleAlumni Magazine:“Placing both fists together high by his

right shoulder, he swung them downacross his belly and up to his left shoulder,emitting a long ‘Ooooooooo’ which rose inpitch with the swing of his arms and wasfollowed by an explosive ‘OP!’ as heslammed both fists down in a choppingmotion. Up came the professorial fistsagain to left shoulder height. Looping backdown, and back up to their starting point,they pulled another long ‘Ooooooooo’ fromthe ample belly. Down slammed the fists.‘OP!’ came the exclamation point, as if hehad punched himself in his solar plexus.The professor’s arms flew up as if he werea great bird about to take flight, thencrashed to his sides. ‘PARABALOU!’ ”

Yale’s first Master was honored by thecreation of a Commencement prize, theRobert Dudley French Award, which isgiven each year to a Jonathan Edwards stu-dent who has demonstrated intellectualleadership during his or her time at Yale.

The Associate Mastership

Norman S. Buck, b.a. 1913, ph.d. 1922,was a professor of economics at Yale and aUniversity provost, but he was best knownto students as the popular Master ofBranford College, where he served from1942 to 1959. Equally beloved among stu-dents was his wife, Polly Buck. Alumnus

Yale’s first Master of a residential college wasProfessor Robert Dudley French (seated at right),who taught English at Yale for many decades andheaded Jonathan Edwards College from 1931 to1953.

Polly Stone Buck became a beloved figure, and ahost at weekly teas for students, during the tenureof her husband, Professor Norman S. Buck, asMaster of Branford College from 1942 to 1959.Since 1997, spouses of Masters receive the title ofAssociate Master.

Leading the Colleges


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Richard Hiers, b.a. 1954, b.d. 1957, said ofMrs. Buck: “I know of no one more devot-ed to Yale.” Polly Buck later penned a mem-oir about her Branford years. Describingafternoon teas, Mrs Buck wrote:

“The boys could get plenty of cocktailsin their own rooms and those of theirpeers, for there were numerous small stu-dent parties on Sunday afternoons wheremore powerful drinks than tea flowedfreely. But for those among the three hun-dred or so in our charge, for ‘whosoeverwants to come’ there was a welcome in theMaster’s house with food, hot tea, andgood talk, and a homelike atmosphere theywouldn’t get elsewhere, sometimes noteven in their own homes. I didn’t foolmyself into thinking that food didn’t play alarge part in bringing the boys, but a leap-ing fire on a winter Sunday afternoon, andlively conversation with the Master andwith each other, was the real drawing card.”

The tireless e≠orts of Polly Buck andother Masters’ spouses led the Universityformally to acknowledge the importance ofthis role by awarding spouses the title ofAssociate Master in 1997.

Writer in Residence

Author and journalist John Hersey, b.a.1936, presided over Pierson College from1965 to 1970 as the first non-academicMaster at Yale. Born in Tianjin, China tomissionary parents, Hersey arrived in New

Haven in 1932. In the Yale AlumniMagazine, August Heckscher, a fellowmember of the class of 1936, recalls:

“Among those who gathered as fresh-men at Yale in the autumn of 1932, JohnHersey quickly became a marked character.He arrived with the aura of the Far East,where he had spent the first ten years of hislife: a tall thin youth, meditative, firm ofpurpose; an aesthete but also an athlete.He became one of a firmly cemented smallcircle of friends, but his influence spread,until he was a member of almost everygroup in the class where judgment andgood advice were sought. When our classhad the e≠rontery to declare itself ‘Yale'sgreatest,’ it must have been in part becauseof our being conscious of his presence—and his promise.”

A model example of the diverse passionsthat drive Yale undergraduates, Herseyplayed varsity football, wrote music criti-cism for the Yale Daily News, and was elect-ed class secretary. After graduation, heremained active in University a≠airs evenas he worked as a war correspondent cover-ing Italy, Russia, China, and Japan for Timeand Life magazines. His World War iiexperience inspired The Wall, the PulitzerPrize-winning A Bell for Adano, andHiroshima.

Aside from his Master’s duties, Herseytaught courses on writing. Students recall

his thoughtful, constructive criticism andhis generosity in making time for individ-ual discussion and mentoring. The late1960s were turbulent years for the countryand its universities. In Hersey’s Letter to theAlumni, he drew upon his experiences dur-ing May Day weekend 1970, when over15,000 demonstrators gathered on Yalecampus to protest the murder trial of BlackPanther leader Bobby Seale. No doubt hisposition as a college Master informed hisinsights on how the American universityand its students were a≠ected by theVietnam War and the incendiary race rela-tions of the time.

Shortly before his death, Hersey washonored by the University with the estab-lishment of the annual John HerseyLecture. Two-time Pulitzer Prize andNational Book Award winner DavidMcCullough, b.a. 1955, the first author topresent a lecture in the series, praisedHersey for having “portrayed our time witha breadth and artistry matched by very few.He has given us the century in a great shelfof brilliant work and we are all his benefi-ciaries.”

Focus on Architecture

It is fitting that the Mastership of Morse,one of Yale’s two modernist residential col-leges, was once filled by art historianVincent J. Scully, b.a. 1940, ph.d. 1949.

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Author and journalist John Hersey became the firstYale residential college Master from outside thetenured faculty ranks. He held the Mastership ofPierson College from 1965 to 1970 while o≠eringcourses on writing.

Professor Vincent J. Scully with students following a lecture in the 1960s. A popular teacher of the Historyof Art and Architecture, he was Master of Morse College from 1969 to 1975.


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During more than sixty years on the facul-ty, Professor Scully has o≠ered popularcourses that opened students’ eyes to thehistory of art and architecture and to theinnovative buildings that distinguish theYale campus.

Scully currently holds the position ofSterling Professor Emeritus of the Historyof Art and continues to lecture in YaleCollege as well as at the University ofMiami. As the second Master of MorseCollege, serving from 1969 to 1975, theeloquent professor increased awareness ofthe unique architectural charms of Morseand Stiles, two buildings that clashed withthe neo-Gothic aesthetic that dominatesYale’s campus.

His twenty books include Shingle Styleand the Stick Style, Density by Design: NewDirections in Residential Development, andYale in New Haven: Architecture andUrbanism (a co-authored work), as well asnumerous studies of the works of LouisKahn, Philip Johnson, and other modernarchitects.

Donors created two di≠erent professor-ships to honor Professor Scully (at YaleCollege and at the School of Architecture)and a number of prizes bear his name.He has been honored for his writing andteaching by the College Art Association, theSociety of Architectural Historians, theNational Building Museum, and the UrbanLand Institute.

A First at Davenport

Katharine “Kitty” Lustman-Findling cameto New Haven in 1955 after earning degrees

in education from Northwestern Universityand Chicago Teachers’ College. An expertin elementary education, Lustman-Findlingtaught at the Yale Child Study Center andlater directed its nursery. In 1970, alongwith a group of Yale undergraduates,Lustman-Findling founded the Calvin HillDay Care Center. In 1971, after the suddendeath of her husband, psychiatry professorand Davenport Master Dr. SeymourLustman, the University asked Lustman-Findling to assume the college’s Mastership.

As the first woman Master, Lustman-Findling guided and mentored YaleCollege’s first class of women students,who matriculated in 1969. Lustman-Findling served until 1973, after which shecontinued to be heavily involved in theUniversity by contributing to pediatricresearch and supporting community educa-tion e≠orts. In 1983 the Calvin Hill DayCare Center’s kindergarten was named inLustman-Findling’s honor.

Breaking New Ground

Charles Twitchell Davis, a professor ofEnglish, American Studies, and AfricanAmerican Studies, profoundly influencedthe development of African American stud-ies at Yale and elsewhere. He headed Yale’sAfrican American Studies program andbecame the first African American toreceive tenure on the Yale faculty as wellas the first to act as a residential collegeMaster, leading Calhoun College from1973 to 1980.

Davis’s groundbreaking publicationsincluded studies of Richard Wright andWalt Whitman, along with Black Is theColor of the Cosmos (an anthology of hisarticles) and The Slave’s Narrative. His aca-demic work points out the importance ofslave narratives not just to historians andliterary critics, but “to anthropologists andfolklorists, historians of art and musicolo-gists, sociologists and political scientists,linguists and psychologists, philosophersand legal historians, and economists andtheologians.”

In 2005, with support from thePresident’s O∞ce, current Calhoun MasterJonathan Holloway established the CharlesT. Davis Lecture Series. Presenters haveincluded composer Anthony Davis (the sonof Charles T. Davis) and acclaimed jazzpianist Jason Moran.

History, Espionage, and Detective Fiction

When Yale hosted a symposium honoringMaster Robin Winks a few years after hisdeath, it took four di≠erent panel discus-sions to do justice to his rich career andbroad-ranging interests. Aside from hismulti-volume history of the BritishEmpire, expertise on the U.S. NationalPark system, studies of Canada and NewZealand, mastery of African American andMaori history, and works on espionage anddetective fiction, Winks found time toserve as a popular Master of BerkeleyCollege from 1977 to 1990.

Winks’s interests led him to visit everynational park in the United States—

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Charles Twitchell Davis was the first AfricanAmerican Master at Yale. A professor of English,American Studies, and African American Studies,Davis served as Master of Calhoun College from1973 to 1980.

The first woman in Yale’s history to serve as aMaster, Katharine “Kitty” Lustman-Findlingbecame Acting Master of Davenport College in1971 after her husband, Dr. Seymour Lustman,died while heading the college.

A renaissance man with interests that ranged fromdetective fiction to the history of the BritishEmpire, History professor Robin Winks served asMaster of Berkeley College from 1977 to 1990.

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estimated at 367—and to serve on theNational Parks Advisory Board. He spent ayear in New Zealand, where he completeda master’s thesis on the Maori people. Oneof his final works, Cloak and Gown:Scholars in the Secret War, 1939-1961,profiled the many Yale graduates active inthe oss and cia.

Winks held the titles of Randolph W.Townsend Jr. Professor of History andJohn B. Madden Master of BerkeleyCollege. Students, colleagues, and friendsimmortalized the professor with a giftthat endowed the Robin Winks TravelFellowship for a History major specializingin International Studies.

The Record Holder

No Master, past or present, comes closeto matching the length of Robert F.Thompson’s tenure. Known as “Master T”to his students, Master Thompson recentlybegan his fourth decade on the job.Appointed to head Timothy DwightCollege in 1978, Master T has witnessedthe coming and going of thousands of Yaleundergraduates. As a teacher of art historycourses, including From West Africa to theBlack Americas: The Black Atlantic VisualTradition, and New York Mambo:Microcosm of Black Creativity, he erases

the conventional boundaries between aca-demic work and extracurricular life.As the Master of Timothy Dwight,Thompson heads the prestigious ChubbFellowship, an endowed lectureship thathas brought world leaders, writers, andartists to speak with TD students. FormerChubb Fellows have included PresidentsHarry S. Truman, Ronald Reagan, andGeorge H.W. Bush, b.a. 1948; Israeli primeministers Shimon Peres and Moshe Dayan;Nobel laureate Toni Morrison; authorNorman Mailer; New York Times corre-spondent R.W. Apple; actor RobertRedford and director Curtis Hanson.

“I take a holistic view of what I do—myteaching and my mastering are all one,” hehas stated. One example of this integrationis the Master’s house over which he pre-sides, which displays numerous works ofart from Africa and South America. “I usemy house as a teaching aid,” says Master T.“I teach o≠ the walls.”

The New Dean

In the October 10, 2008 announcement ofMary Miller’s (ph.d. 1981) appointment asthe fifteenth Dean of Yale College, YalePresident Richard Levin said, “She is amagnificent scholar, a devoted teacher,and a terrific Master.” After serving the

University for twenty-eight years as a fac-ulty member and nine years as the Masterof Saybrook College (1999-2008), Millerbecame the first woman to serve in theCollege’s highest o∞ce.

A world-renowned scholar of Mayanart, Miller played a central role in numer-ous documentaries about the peoples ofMexico and Central America. One of herbooks, The Blood of Kings: Ritual andDynasty in Maya Art (with Linda Schele),won the Alfred H. Barr, Jr. Award from theCollege Art Association of America. In1994, Miller was elected to the AmericanAcademy of Arts and Sciences. In recogni-tion of her scholarship, Miller was appoint-ed the Vincent Scully Professor of theHistory of Art in 1998 and was named theSterling Professor in the History of Art, thehighest honor bestowed on Yale faculty, inMay 2008.

Mary Miller is an accomplished teacherand mentor. She was featured prominentlyin the “Great Teachers at Yale” series creat-ed by the Association of Yale Alumni.Miller remained in her post as Saybrook’sMaster until December 2008, when sheo∞cially became the new Dean of YaleCollege. In her new role, Dean Miller plansto stay intimately involved in student life,saying, “I admire the talent and diversityof student life, and that is why I was inter-ested in taking this position.”

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Mary Miller, the Master of Saybrook College since1999, and Sterling Professor of the History of Art,left her position in December 2008 to serve as thefifteenth Dean of Yale College.

The record for the longest tenure as a residential college Master is held by Robert F. Thompson, Professorof the History of Art and African American Studies, who was appointed Master of Timothy DwightCollege in 1978 and continues in the position today.


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Yale has produced excellent investment returns. Over the ten-year periodending June 30, 2008, the Endowment earned an annualized 16.3 percentreturn, net of fees, placing it in the top one percent of large institutionalinvestors. Endowment outperformance stems from sound asset allocationpolicy and superior active management.

Yale’s long-term superior performance relative to its peers andbenchmarks has created substantial wealth for the University. Over theten years ending June 30, 2008, Yale added $10.5 billion relative to itscomposite benchmark and $13.6 billion relative to the average return ofa broad universe of college and university endowments.

Yale’s long-term asset class performance continues to be outstanding. Inthe past ten years every asset class posted superior returns, significantlyoutperforming benchmark levels.

Over the past decade, the absolute return portfolio produced anannualized 12.0 percent, exceeding the passive benchmark of the One-Year Constant Maturity Treasury plus 6 percent by 1.5 percent per yearand besting its active benchmark of hedge fund manager returns by 1.9percent per year. For the ten-year period, absolute return results exhibitedessentially no correlation to traditional marketable securities.

For the ten years ending June 30, 2008, the domestic equity port-folio returned an annualized 11.1 percent, outperforming the Wilshire5000 by 7.5 percent per year and the Russell Median Manager return by6.6 percent per year. Yale’s active managers have added value to bench-mark returns primarily through stock selection.

Yale’s internally managed fixed income portfolio earned an annu-alized 6.2 percent over the past decade, exceeding the Lehman BrothersTreasury Index by 0.4 percent per year and the Russell Median Managerreturn by 0.7 percent per year. By making astute security selection deci-sions and accepting illiquidity, the Endowment benefited from excessreturns without incurring material credit or option risk.

Investment Performance

5

20

$5000

$4000

$3000

$2000

$1000

01998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Endowment Mean of Broad Universe of Colleges and Universities Inflation

Yale’s Performance Exceeds Peer Results

1998 to 2008, 1998 = $1,000

Performance byAsset Class


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The foreign equity portfolio generated an annual return of 17.3percent over the ten-year period, outperforming its composite benchmarkby 6.0 percent per year and the Russell Median Manager return by 5.4percent per year. The portfolio’s excess return is due to e≠ective securityselection and country allocation by active managers.

Results from Yale’s non-marketable assets demonstrate the valueof superior active management. Private equity earned 35.9 percent annu-ally over the last ten years, outperforming the passive benchmark ofUniversity inflation plus 10 percent by 21.7 percent per year and thereturn of a pool of private equity managers compiled by CambridgeAssociates by 18.0 percent per year. Since inception in 1973, the privateequity program has earned an astounding 30.9 percent per annum.

Real assets generated a 19.4 percent annualized return over theten-year period, outperforming the passive benchmark of Universityinflation plus 6.0 percent by 9.3 percent per year and an active bench-mark of real assets manager returns by 7.0 percent per year. Yale’s outper-formance is due to successful exploitation of market ine∞ciencies andtimely pursuit of contrarian investment strategies.

21

40%

35%

30%

25%

20%

15%

10%

5%

0Absolute Return Domestic Equity Fixed Income Foreign Equity Private Equity Real Assets

Yale Return Active Benchmark Passive Benchmark

Yale Asset Class Results Trounce Benchmarks

1998 – 2008

Active BenchmarksAbsolute Return: CSFB/Tremont CompositeDomestic Equity: Frank Russell Median Manager, U.S. EquityFixed Income: Frank Russell Median Manager, Fixed IncomeForeign Equity: Frank Russell Median Manager Composite,

Foreign EquityPrivate Equity: Cambridge Associates CompositeReal Assets: NCREIF and Cambridge Associates Composite

Passive BenchmarksAbsolute Return: 1-year Constant Maturity Treasury + 6%Domestic Equity: Wilshire 5000Fixed Income: Lehman Brothers 1-5 Year U.S. Treasury IndexForeign Equity: Blend of msci eafe Index, msci emf Index,

University Inflation + 8%Private Equity: University Inflation + 10%Real Assets: University Inflation + 6%


Since 1975, the Yale Corporation Investment Committee has been respon-sible for oversight of the Endowment, incorporating senior-level invest-ment experience into portfolio policy formulation. The InvestmentCommittee consists of at least three Fellows of the Corporation and otherpersons who have particular investment expertise. The Committee meetsquarterly, at which time members review asset allocation policies, Endow-ment performance, and strategies proposed by Investments O∞ce sta≠.The Committee approves guidelines for investment of the Endowmentportfolio, specifying investment objectives, spending policy, andapproaches for the investment of each asset category.

Management andOversight

6Investment Committee Douglas A. Warner, iii ’68

ChairmanFormer ChairmanJ.P. Morgan Chase & Co.

G. Leonard Baker ’64Managing DirectorSutter Hill Ventures

Joshua Bekenstein ’80Managing DirectorBain Capital

Je≠rey Bewkes ’74Chairman and ceoTime Warner Inc.

Shauna KingVice President Finance & AdministrationYale University

James Leitner ’75PresidentFalcon Investment Management

Richard C. Levin ’74 Ph.D.PresidentYale University

Henry F. McCance ’64ChairmanGreylock Management

William I. Miller ’78ChairmanIrwin Financial Corporation

Ranji Nagaswami ’86 mbaSenior Managing Director andChief Investment O∞cerAllianceBernstein Investments

Honorable Barrington Parker’65, ’69 ll.b.JudgeUnited States Court of Appealsfor the Second Circuit

Dinakar Singh ’90ceo and Founding Partnertpg-Axon Capital

Fareed Zakaria ’86EditorNewsweek International

22


While many devoted Yalies can recite thenames of the twelve colleges withoutpause, few can recall the stories of the tenmen and two towns whose names grace thecolleges. Some of the men were involved inYale’s founding, while others dedicatedtheir careers to transforming and expand-ing the University. Several went beyondYale’s gates to become prominent figures ingovernment, science, and religion. Indeed,as a group, they truly embody the motto“For God, for Country, and for Yale.”

Laying the Foundations

Several eponyms were prominent in theearly history of New Haven and Yale.John Davenport founded the New HavenColony in 1638. In England he was aprominent Puritan minister and becamethe New Haven Colony’s first clergyman.Davenport had an acute understanding ofthe need for a learned ministry to ensureproper interpretations of the Bible andbelieved a local college was necessary.While no school began during his lifetime,his support of education is memorialized inDavenport College.

Abraham Pierson was a one-time stu-dent of Davenport. Pierson went on toHarvard, where he graduated in a class offive, and wound up as minister of Killing-worth (now Clinton), Connecticut. InNovember of 1701 the founders of Yaleselected Pierson to be the first rector.Pierson’s congregation at Killingworthrefused to buy back the house they hadgiven him, however, leaving Pierson unableto leave and the new College in limbo.

Pierson spent his time as rector leading hiscongregation and running Yale from hishome in Killingworth. To leverage his twopositions—and perhaps to save time—Pierson had his students memorize his ser-mons verbatim each week, arguably oneof the first homework assignments givenat Yale.

Yale’s uncertain place of origin is reflect-ed in the names of two of its residentialcolleges. The story of Yale’s foundinginvolves a meeting in November of 1701 often ministers in the house of ReverendSamuel Russel in Branford, Connecticut.At this meeting, each of the ministers laidbooks—forty in all—upon a table and pro-claimed: “I give these books for the found-ing of a college in this colony.” While thevalidity of this story is debated, it serves asthe symbolic founding of the College andis immortalized in Yale’s Branford College.

In that same meeting, the clergymendecided that the College would be in thetown of Saybrook, Connecticut. However,

Rector Pierson’s predicament prevented theCollege from moving to Saybrook until hisdeath in 1707. Nine years later, an Act ofthe Connecticut Colony moved the Collegeto New Haven. Saybrook College obtainedits name from this temporary home of Yale.

While Pierson was instrumental in theeducational foundation of the early College,one of the most important financial contri-butions came from George Berkeley in 1731.

Berkeley was an acclaimed philosopherin the early eighteenth century and thefounder of “Immaterialism.” His religiousconviction and belief in the purity of thenew world led him to attempt to start acollege in the Bermudas. He spent severalyears preaching in Providence, RhodeIsland, hoping for funds from Parliamentto start his college. Unsuccessful, Berkeleydecided in 1731 to donate his 96-acre farmand more than 800 books to the fledglingYale College and return to England.

Residential College Eponyms

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John Davenport, a Puritan minister from England,founded the New Haven Colony in 1638 andbecame its first clergyman. Davenport College isnamed in his honor.

A statue in Old Campus honors Abraham Pierson,who became the first rector of Yale in 1701 and isthe eponym for Pierson College.

The Russel house, in Branford, Connecticut, isbelieved to be the site of the founding of YaleCollege. In honor of the first location of the school,one of the residential colleges is called BranfordCollege.

Bishop George Berkeley (1685-1735) of Ireland wasa benefactor of the recently founded Yale Collegeduring his stay in the colonies. Yale honors theassociation through the Berkeley Fellowship,created from the proceeds of land he left to Yale,and the naming of one of the first of the residentialcolleges.

Before Yale came to New Haven, it was located fora few years in Saybrook, Connecticut, a fact com-memorated by this stone located in the town ofSaybrook and by the naming of Saybrook College.


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Though seemingly modest now, this dona-tion represented an enormous gift to thethen very small school.

Towards a University

The early Yale was almost exclusively aplace of religious study. However, by themid-eighteenth century, the urge tobroaden the horizons of the Universitywas already felt. Several residential collegenames commemorate individuals’ e≠orts tolead the College through trying times andtransform it into a university.

Ezra Stiles graduated in Yale’s class of1746 and returned to tutor from 1749 to1755. He went on to serve as a minister invarious congregations around the North-east before serving as President of Yale.Stiles began his presidency in 1778 andstewarded the College through the

precarious years of the Revolution. Thewar made it impossible to procure food forthe students in winter, forcing Stiles to dis-miss the students for several months in thewinter of 1778-1779. Then, with the stu-dents back, the British attacked NewHaven by sea on July 5, 1779. Stiles evacu-ated the books and manuscripts of theCollege while his son led a large group ofstudents and professors in mobilizing thecity’s defenses. While the Elis and NewHaven residents fought bravely, the citywas taken. However, an advancingAmerican army quickly forced the Britishto retreat. The commander of the invadingBritish force expressed his disappointment

by writing, “That place is spacious and avery considerable town; it has the largestuniversity in America, and might with pro-priety be styled the parent and nurse ofrebellion.” Stiles reconvened the College inOctober. The rest of Stiles’s presidency wasspent expanding the curriculum and intro-ducing a rigorous examination system.

The first Timothy Dwight followedStiles as Yale’s President in 1795. The elderTimothy Dwight (grandfather of the sec-ond Timothy Dwight) was an extremelyprecocious child. He read the Bible at theage of four and began college-level studiesat the age of nine, graduating first in hisYale class in 1769. As President, TimothyDwight founded the medical school in 1810and expanded o≠erings in science. He wasthe first President to envision Yale as amultifaceted University.

Timothy Dwight’s e≠orts to expand thesciences included the establishment in 1798of a new professorship in chemistry. Afterfour years of searching, Dwight settledupon Benjamin Silliman, a Yale graduate of1796 who worked as a tutor and studied asa law student. Silliman had little back-ground in science and had never studiedchemistry, yet Dwight saw potential.Silliman spent the next two years inPhiladelphia studying chemistry andreturned to Yale to begin teaching in 1804.Over the following decades, Sillimanbecame America’s greatest proponent ofscience. In addition to teaching at Yale, hegave public lectures around the countryand established the American Journal ofScience and Arts. Silliman shared Timothy

Dwight’s dream of Yale as a more expan-sive university and helped found theSchool of Engineering in 1852 before retir-ing in 1853 at the age of seventy-four. Hetaught at Yale for fifty-four years.

Timothy Dwight’s and BenjaminSilliman’s e≠orts to create a university wereachieved under the presidency of TimothyDwight’s grandson in 1887. The youngerTimothy Dwight in many ways served asthe bridge between the nineteenth-centuryYale College and the twentieth-century YaleUniversity. A graduate of the Yale class of1848, Dwight was inaugurated as Presidentin 1886 and was the last minister President.His presidency was marked by dramaticexpansion and diversification of learning.Under his tenure, enrollment increased 150percent, faculty more than doubled, andOld Campus was added to the physicalplant. Equally important, Dwight was ableto bring the disparate schools of Yaletogether into a coordinated university, end-ing the animosity and division between thedisciplines. To pay for all this, Dwightastutely managed the Endowment, took nosalary, and contributed much of his per-sonal fortune to the University. Heresigned in June 1899, having transformedthe old Collegiate School into a modernuniversity.

24

Ezra Stiles College is named for an importantPresident of the University; during his tenure from1778 to 1795, he reformed the curriculum and raisedacademic standards. He graduated from Yalein 1746.

Timothy Dwight, b.a. 1769, as Yale’s Presidentfrom 1795 to 1817, introduced the study of chem-istry and founded the medical school in 1810. Hisgrandson of the same name, President from 1886to 1899, helped make Yale a true university.

Benjamin Silliman, who inspired the naming ofSilliman College in 1940, taught at Yale from 1804to 1853 and became an influential force in Americanscience education.


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Beyond Yale’s Gates

Four of the twelve colleges are named formen whose greatest contributions weremade outside of Yale’s gates. JonathanEdwards entered Yale at the age of twelve,graduating as valedictorian in 1720. Hethen tutored at Yale from 1724 to 1726before becoming a preacher. The late 1720ssaw much religious drift in New England.A lack of farmland meant young men hadto wait longer to marry and gain independ-ence, leading to restlessness among youth.Edwards reacted by developing a hard-hit-ting preaching style with vivid images ofsin and damnation, which were o≠set bythe potential for salvation by faith alone.Despite his reputation for sermons such as“Sinners in the Hands of an Angry God,”Edwards became a voice for moderationand compromise between the “NewLights” and “Old Lights” during theGreat Awakening.

Jonathan Trumbull was the governorof Connecticut from 1769 to 1784. Whenthe Revolutionary War broke out, he wasthe only colonial governor to side withthe colonists. As a result, he was bothConnecticut’s last colonial governor and itsfirst state governor. Under his leadership,Connecticut was the largest contributor ofmunitions and supplies to the continentalarmy, earning it the nickname “The Pro-vision State.”

John Calhoun graduated from Yale in1804. Born and raised in South Carolina,Calhoun exemplified the geographicaldiversity that had recently developed atYale. After the war Yale’s reputation hadspread to the South and attracted a sub-stantial number of southern students.Calhoun went on to hold a number ofelected o∞ces including the Vice Presidencyunder both John Quincy Adams andAndrew Jackson. However, Calhoun is bestknown for his staunch defense of state’srights in the face of the anti-slavery move-

ment. Although his views on slavery havelong been discredited, his positive contri-butions to national government were manyand significant.

Samuel Morse studied under Sillimanand graduated in 1810. He is best knownfor his contributions to the telegraph.Morse invented both the technology forsingle-wire telegraphy and the technologyfor message transmission over long dis-tances. He would go on to co-developMorse Code with Alfred Vail. Less wellknown is his devotion to painting duringhis early life. Unfortunately, his later yearswere marked by a long and tiring patentfight over the invention of the telegraph.Ultimately, the Supreme Court ruled in hisfavor, though Morse never received fullrecompense for his invention.

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Jonathan Edwards served as a tutor at Yale from1724 to 1726 before becoming a clergyman who wonfame for his writings and sermons during the GreatAwakening. His name was given to one of the firstresidential colleges.

A governor of Connecticut from 1769 to 1784,Jonathan Trumbull received an honorary doctorateof laws (ll.d.) in 1779. Trumbull College is namedto honor the man who led Connecticut from colonyto statehood during the Revolution.

Calhoun College was named for John C. Calhounof South Carolina, who served as a U.S. Senator, invarious cabinet positions, and as Vice President ofthe United States under Presidents John QuincyAdams and Andrew Jackson.

Samuel F. B. Morse, a Yale graduate noted fordeveloping the telegraph as well as for his portraitsand other paintings, inspired the naming of MorseCollege at Yale in 1963.


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The Investments O∞ce manages the Endowment and other Universityfinancial assets, and defines and implements the University’s borrowingstrategies. Headed by the Chief Investment O∞cer, the O∞ce currentlyconsists of twenty-two professionals.

Investments O∞ce David F. Swensen ’80 Ph.D.Chief Investment O∞cer

Dean J. Takahashi ’80, ’83 MPPMSenior Director

Peter H. Ammon ’05 mba, ’05 maDirector

Alexander C. BankerDirector

Alan S. FormanDirector

Anne MartinDirector

Timothy R. Sullivan ’86Director

Stephanie S. Chan ’97Associate General Counsel

Deborah S. ChungAssociate General Counsel

Kenneth R. Miller ’71Associate General Counsel

Michael E. FinnertyAssociate Director

Suzanne K. WirtzAssociate Director

Celeste P. BensonSenior Portfolio Manager

Carrie A. AbildgaardSenior Associate

Lisa M. Howie ’00, ’08 mbaSenior Associate

R. Alexander Hetherington ’06Senior Financial Analyst

Xiaoning Wu ’04Senior Financial Analyst

Matthew S. T. Mendelsohn ’07Financial Analyst

Jonathan Rhinesmith ’08Financial Analyst

John V. Ricotta ’08Financial Analyst

Michael R. Schmidt ’08Financial Analyst

Cain P. Solto≠ ’08Financial Analyst

Berkeley College Courtyard.


The Berkeley College Endowed Mastership

In 1988, a directed gift created the Univer-sity’s only endowed Mastership whenfriends of the late John Madden (b.a.1941), who was a successor trustee of theYale Corporation from 1975 to 1987, hon-ored his memory by establishing the JohnB. Madden Mastership of Berkeley College.As the Dean of Yale College said at thegift’s announcement, “This endowmentreflects not only the dedication and loyaltyof the donors, but also the richness of lifeand variety of experience that the donorsand their successors have had as students

residing in the colleges.” The donors con-sidered this Mastership the ideal way tohonor John Madden, a former resident ofBerkeley, a generous donor, and a dedi-cated alumnus.

Madden served as partner at the NewYork banking firm of Brown BrothersHarriman & Co. from 1955 until his deathin 1987, holding the position of managingpartner from 1968 to 1983. While sittingon the Yale Corporation through the termsof three Yale University Presidents, hechaired various committees including the

Corporation Committee on Investment,which oversees the University’s endowmentoperations. Today, his picture hangs in theInvestments O∞ce with a quotation foundin his datebook.

I returned, and saw under the sun,that the race is not to the swift,nor the battle to the strong, neitheryet bread to the wise, nor yet richesto men of understanding, nor yetfavour to men of skill; but time andchance happeneth to them all.—Ecclesiastes, Chapter 9, Verse 11

Former Yale University President BennoC. Schmidt, Jr. called Madden one of hisclosest advisers and said that he “helpedput Yale’s financial house in order after thedi∞cult decade of the 1970s.” The Maddenfund was created by gifts from Robert V.Roosa, a group of the honoree’s fellowalumni, and colleagues from BrownBrothers Harriman & Co.

John Madden distinguished himselfduring his Yale career by becoming Presi-dent of Phi Beta Kappa and receiving theHart Lyman Prize for excellence of charac-ter and achievement. After graduating fromYale, he served as a captain in the U.S.Army during World War ii and saw actionin both Europe and the Pacific. Funds leftto Yale in his will endowed the JohnBeckwith Madden ’41 Scholarship Fund,which provides financial aid to a Yaleundergraduate each year, with preferenceto students from Brooklyn, New York,where Madden and his family had theirhome.

John B. Madden, in whose honor the first endowed Mastership of a residential college (Berkeley) wascreated in 1988.

Berkeley not only benefits from a specifi-cally endowed Mastership, but the collegeenjoys a range of endowed support for var-ious activities. “Endowments have fueledpractically every aspect of residential col-lege life,” says Berkeley Master Marvin M.Chun, who administers twenty endow-ments that are earmarked specifically to hiscollege. “Thanks to the Walker MemorialFund, we have the best-equipped wood-shop on campus. Endowed funds supportthe Berkeley College Orchestra, studenttrips to Broadway, a new poetry project to

sponsor public readings, and other creativeand performing arts.” Endowments pro-vide monies for Master’s teas, which overthe years allowed students to interact withdistinguished guests such as Meryl Streep,Julia Child, and Stephen King.

Right: Popular professor Marvin M. Chun, Depart-ment of Psychology, became the John B. MaddenMaster of Berkeley College in 2007. The positionwas endowed in 1988.

Other Support for Berkeley

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Sources

Financial and Investment Information

Educational institution asset allocations andreturns from Cambridge Associates.

Much of the material in this publication isdrawn from memoranda produced by theInvestments O∞ce for the Yale CorporationInvestment Committee. Other material comesfrom Yale’s financial records, Reports of theTreasurer, and Reports of the President.

Pages 8-9, 12-14, 20-21Educational institution asset allocations andreturns from Cambridge Associates.

Yale’s Residential Colleges—A Timeline andEndowed Funding for Residential Colleges

Bergin, Thomas G. Yale’s Residential Colleges:The First Fifty Years. Yale University, 1983.

Kelley, Brooks Mather. Yale: A History.Yale University Press, 1974.

Ryan, Mark B. A Collegiate Way of Living:Residential Colleges and a Yale Education.Yale University, 2001.

Yale O∞ce of Development. Database:Records of Yale endowments.

Leading the Colleges

Bergin, Thomas G. Yale’s Residential Colleges:The First Fifty Years. Yale University, 1983.

Brennan, Elizabeth A., and Clarage,Elizabeth C. “John Hersey.” In Who’s Whoof Pulitzer Prize Winners. Westport, Conn.:Greenwood Publishing Group, 1999.

Buck, Polly S. The Master’s Wife. Chapel Hill,N.C.: Algonquin Books, 1989. p. 101.

Conni≠, Richard. “The Patriarch: VincentScully.” Yale Alumni Magazine, March/April2008.

Edmonds, Duncan. “Robin Winks: AnAppreciation.” American Review of CanadianStudies, March 22, 2004.

Fellman, Bruce. “Af-Am at 30” [Interviewwith Robert F. Thompson and others].Yale Alumni Magazine, summer 1999.

Gates, Henry Louis. “Charles TwitchellDavis: The Seminal Scholar of the African-American Literary Tradition.” The Journal ofBlacks in Higher Education, July 1, 2007.

Gibson, Frank. “How I Learned the LongCheer.” From Yale Alumni Magazine,July/August 2008.

“A Life in Writing: John Hersey, 1914-1993.”Yale Alumni Magazine, October 1993.

“Lustman-Findling Memorial.” Yale Bulletin& Calendar, November 2, 2007.

“Master Robert Farris Thompson,” inTimothy Dwight College Web site. Based onYale Alumni Magazine. Updated September2008.

“Masters and Deans of Yale Colleges,” inResources on Yale History. Manuscripts andArchives, Yale University Library onlineresource. Updated November 2008.

“Prominent Art Historian Named Dean ofYale College.” Yale Bulletin & Calendar,October 10, 2008.

Stevenson, James. “Keeping Things Cool—The Talk of the Town” [Interview withRobert F. Thompson]. The New Yorker,November 9, 1968, p. 52.

Residential College Eponyms

American National Biography Online.“George Berkeley, ” “Jonathan Edwards.”Last revised 2000.

Clap, Thomas. The annals or history ofYale-College, in New-Haven, in the colony ofConnecticut, from the first founding thereof, inthe year 1700, to the year 1766. New Haven,1766.

Conn. State Library (Online). “GovernorJonathan Trumbull.” Last revisedAugust 4, 2008.

Kelley, Brooks Mather. Yale: A History.Yale University Press, 1974.

Kingsley, William L. (ed.). Yale College, asketch of its history, with notices of its severaldepartments, instructors, and benefactors,together with some account of student life andamusements. New York: Holt, 1879.

Mooney, Richard E. “The EponymousDozen: Naming Yale’s 12 ResidentialColleges.” Sterling Memorial Library,Yale University. New Haven, May–July 2007.

Oviatt, Edwin. The Beginnings of Yale(1701-1726). Yale University Press, 1916.

Sibley, John Langdon. Biographical sketches ofgraduates of Harvard university, in Cambridge,Massachusetts: with an appendix, containing anabstract of the steward’s accounts, and notices ofnon-graduates, from 1649-50 to 1659.Massachusetts Historical Society.

The Berkeley College Endowed Mastership

“John B. Madden, Led Brown Brothers Firm”[obituary]. The New York Times, February 11,1988.

Yale University O∞ce of Development.“Yale’s First Endowed Mastership.”Development Report, 1988-89.

Photo Credits

Front cover: Steve Dunwell Photography,Inc., Boston

Back cover and inside back cover:Michael Marsland, O∞ce of Public A≠airsResidential college shields courtesy ofYale University

Inside back cover (top left & bottom left):Tom Strong

Back cover (top left): Steve DunwellPhotography, Inc., Boston

Pages 1, 7, 9, 12, 13, 19 (top), 26, 27Michael Marsland, O∞ce of Public A≠airs

Pages 10-11, 16 (bottom), 17-18,19 (bottom), 23-25Sterling Memorial Library Manuscriptsand Archives

Page 11 (bottom)Peter Aaron/Esto, Courtesy NewmanArchitects ©2009

Page 16 (top)Austin Cooper, Yale Daily NewsCourtesy of Judith Moore

Page 18 (bottom)Courtesy of the Calvin Hill Day Care Center

DesignStrong Cohen/D. Pucillo


Morse Pierson Saybrook Silliman Ezra Stiles Trumbull

Morse College Pierson College

Saybrook College Silliman College

Ezra Stiles College Trumbull College


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Calhoun College Davenport College

Timothy Dwight College Jonathan Edwards College

Berkeley Branford Calhoun Davenport Timothy Dwight Jonathan Edwards

Berkeley College Branford College

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2008 yale endowment report

Documents

endowment value

endowment performance

endowment growth

endowment contributions

management of yales

endowment inated post

percent of total revenues

percent of projected