Lalalal

9-807-073

REV: MAY 8, 2007

JOSH LERNER

Yale University Investments Office: August 2006

David Swensen slowly crossed the trading floor of the Yale Investments Office and looked over

the hectic scene. While Swensen himself could not move quickly—he had been on crutches since an

injury in the Yale Summer League championship softball game against the Biological and Biomedical

Sciences team earlier in the month—the remainder of the staff was moving rapidly, whether leafing

through online data or consulting with their peers about prospective investments.

Swensen had every reason to feel content, despite his recent injury. The endowment had just

completed another spectacular year, having grown to $18 billion (up from $1 billion when he had

taken over the office). Yale had developed a rather different approach to endowment management,

including substantial investments in less efficient equity markets such as private equity (venture

capital and buyouts), real assets (real estate, timber, oil and gas), and “absolute-return” investing.

This approach had generated successful, indeed enviable, returns. Swensen and his staff were proud

of the record that they had compiled and believed that Yale should probably focus even more of its

efforts and assets in these less efficient markets.

But his thoughts turned to the larger challenges associated with the management of the

university’s endowment. The very success of their strategy had generated new questions. How far

did they think Yale should or could go in this direction? How should they respond to the growing

popularity of the approach they had chosen? Given the turbulent times that private equity funds

were facing, should this asset class continue to play an integral role in Yale’s portfolio?

Background1

Ten Connecticut clergymen established Yale in 1701. Over its first century, the college relied on

the generosity of the Connecticut General Assembly, which provided more than half of its funding....