Yale Investments Office

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1.How has the Investment Office selected, compensated, and controlled private equity fund managers? What explains the differences between its strategy in private equity with that in other asset classes? As for private equity asset allocation the Investment Office focused on finding external "value-added investors" with the sterling capability to build better businesses not only financially but mainly operationally. They believed this strategy led to enhancing returns independently of the market downturns. Thus, a limited number of long-standing partnerships were created - exclusively with partners aligned with the generalized investment policies of the Investment Office - with "over 90% of the portfolio invested in highly prestigious funds sponsored by the general partners of the university's group". Yale sought for compensation to be as linked as possible with investment performance rather than based in high fixed fees. With this strategy they intended for private equity funds managers' to be more motivated and to align its objectives with theirs. On the other side equity firms were given a considerable amount of flexibility on their investment decisions. The control was done mainly in the selection stage where Yale guaranteed that its and the firms' objectives were as aligned as possible and so almost no deals were performed with large financial institutions, avoiding "conflicts of interests and lack of incentives". The Investment Office portfolio is constituted by 4 main "categories" of assets: marketable securities, private equity (both domestic and international), real assets and absolute-return strategies. Unlike private equity management, marketable securities, specifically bonds, were dealt internally. The reason for that was Swensen viewed very little value added from external managers in this specific category of assets and so he didn't consider it

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