PrintAugust 22, 2011
Princeton's Unobservable Assets
As an amateur investor, I follow with amazement the major university endowments, and how many of our ancient institutions jumped on the "Yale model" bandwagon about 10 years ago. This model calls for an emphasis on "alternative investments," meaning highly leveraged bets that asset values would continue to rise over the long term, leaving the portfolios illiquid in a market downturn. As has happened.
This investment strategy was sold to trustees as being perfectly suited for well-off universities, because a nonprofit institution with deep financial pockets can easily fund its operations, so the thinking goes, without having to rely on traditional stock and bonds for a steady income from stock dividends and bond interest. After all, nonprofits don't pay taxes or dividends to investors. The "Yale model" theorized that big endowments can afford to tie up their capital in 20-year, higher-return investments, such as private equity shares in middle-class residential...(Read Full Article)
