Why investors allocate to venture instead of hedge funds over virtually everything else…

The key stat is around minute 40. But don’t forget the other huge criterion: diversification.

In the Swensen “Yale system”, the Buffet idea of “just own the index”, seems not at all what made Yale succeed.

Here is a summary of his talk while visiting Schiller’s investment class at Yale in 2010 or so.

First, a link to his basic talk on strategy and how they succeeded: https://podcasts.apple.com/us/podcast/financial-markets-audio/id341651121?i=1000063752200

An interesting ranking he shares of returns by class:

VC +45% per year, 1st quartile vs 3rd quartile

RE 17%

HF 11

Equities 2-4

Bonds 0.5%

His list of priorities:

Equity first and diversified

Don’t time the market

Security selection – choose your skills-match and consider the efficiency of markets you target

Yale therefore is 70% real assets and illiquid equities, plus 26% in public equities— 20%+ in private equity and venture. (Compare that to most “normal” people or family offices…)

Results

⁃ topline has been up a lot, 22x in 25 years

⁃ with only 1987 as a down year (-1%) and Yale was positive every other year

⁃ equity drove the returns but diversification made it stable