David Swensen on covid-19-2020

Yale News reported on September 24, 2020 that the Yale endowment generated a 6.8 percent return in fiscal year 2020, bringing the endowment's value to $31.2 billion. The article noted that the endowment returned 9.9 percent per annum over the twenty years ending June 30, 2020, exceeding broad-market results for domestic equities. The 2020 fiscal year covered the period of the March 2020 COVID crash and the subsequent recovery, and the return reflected the discipline of holding the portfolio through one of the fastest bear-and-rebound cycles on record. The article also reported that Yale's spending from the endowment for the year was approximately $1.4 billion, representing approximately one-third of the university's operating budget. This was an increase over the prior year and reflected both the spending rule and the long-term growth of the corpus. The COVID year was a test of the spending discipline: market values fell sharply in March 2020, and the smoothed spending rule allowed the operating budget to remain intact while the investment office held the portfolio's allocations steady through the drawdown. Yale News framed the 2020 outcome as the product of the endowment model's long-horizon discipline. The article noted that the office's commitment to private market partnerships, real assets, and absolute-return strategies had produced a portfolio whose volatility was lower than a conventional equity-heavy portfolio while its long-cycle return was higher. The 2020 fiscal year was an explicit test of this thesis - the COVID crash was severe and rapid, but the endowment's private market valuations lagged the public market moves and the office's discipline was to maintain the underlying commitments through the cycle.

The Yale News coverage of the 2020 fiscal year return also addressed the long-run distribution of the endowment across asset classes. The article noted the endowment's heavy allocation to alternative assets - private equity, venture capital, real assets, and absolute-return strategies - and explained that the COVID drawdown in the public-market portions of the portfolio was substantially buffered by the lagged valuation of the private market positions. This buffering, the article noted, is the operational manifestation of the diversification principle that underlies the Yale Model. The article also described the operational discipline of the office during the COVID period. With staff working remotely and the public market portions of the portfolio showing large mark-to-market drawdowns in March 2020, the office maintained its commitment schedule to private market partnerships, continued to evaluate new commitments to existing and new general partners, and refrained from any tactical reduction of the strategic asset allocation. The discipline reflected the long-horizon framework: the office's job is to maintain the strategic allocation through cycles, not to time them. Yale News framed the 2020 fiscal year as a confirmation of the model's underlying thesis. The endowment had been criticized in some quarters after the 2008 drawdown for its heavy allocation to illiquid assets, but the 2020 fiscal year demonstrated that the diversification across asset classes and the patience to hold through drawdowns had produced a portfolio whose long-cycle returns continued to exceed broad-market benchmarks while its drawdown profile was more forgiving. The article noted that the endowment model's strength is not in any single year's return but in the compounding over full market cycles.