ExERCISE 1. Discuss the following statement critically: Over the past 25 years m

Question

ExERCISE 1. Discuss the following statement critically: Over the past 25 years many university endowments have.. invested across a wide range of "alternative assets", from private equity and hedge funds to timber. One idea behind the strategy was that the traditional dominance of domestic equities within institutional portfolios put lots of eggs in one basket... bjut the model came into question in 2008 and 2009, when the financial crisis hit. In the year to June 30th 2009, the Yale endowment fell by 24.6% and Harvard's portfolio fell by 27.3%.

Explanation / Answer

The 'Yale endowment framework' has earned superior returns by placing a huge exposure in unconventional investments such as private equities/ venture capitals etc . Allocation in unconventional asset categories needs superior asset selection competencies, lengthier gestation timing & more minimum investments. The 2 decades prior to the 2008 financial downturn were beneficial for unconventional assets. Endowments were initiators in the unconventional asset categories & they obtained high returns. However what has been successful in the past may not be successful in the future. Presently, endowments will have to develop fresh investment proposals. The 2008 financial downturn adversely impacted university endowments. Various endowments collectively experienced negative returns of 23 per cent from July -November (2008). It appears that even diversification into unconventional assets cannot give total safeguard against severe market downturns. In the Yale model majority of the assets were blocked into illiquid assets, the endowment’s performance fell below that of smaller endowments . Hence, since the 2008 crisis, it has been under criticism for being quite an inflexible investment strategy which is too dependent on the expertise of its investing team.

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