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Yale names Matthew Mendelsohn to run $31bn endowment

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Yale University has appointed Matthew Mendelsohn to succeed David Swensen as the head of its influential $31bn endowment, underscoring the rising importance of private capital to big investors.

Swensen passed away in May after a nine-year battle with cancer and a 36-year long stint leading his alma mater’s endowment, where he revolutionised the industry thanks to big pioneering bets on hedge funds, private equity and venture capital.

The search committee, chaired by former Yale provost Ben Polak, “left no stone unturned” in its search for Swensen’s successor as chief investment officer of the endowment, the university said in a statement

“In the end, the right answer was immediately before us. Matt Mendelsohn has the respect of his colleagues, of managers, and of his peer chief investment officers — and an extraordinary record of investing, building and leading teams, and representing what is best about Yale,” Polak said in the statement. 

The decision to promote the 36-year-old Mendelsohn to the top job highlights the importance of unlisted, private assets to Yale’s enviable returns over the past three decades. Mendelsohn at present leads the endowment’s venture capital investments, which comprise more than 25 per cent of its $31bn. 

Yale’s endowment grew strongly under Swensen’s stewardship

The Yale endowment’s returns have faded a little in recent years, but an average annual return of 12.4 per cent over the past three decades remains one of the best in the global investment industry, both in scale and length. 

It estimates it has made $9.5bn more than the average US university endowment over the past decade, and so-called “private capital” investments in unlisted asset classes such as private equity and venture capital are a major reason for its strong performance. The venture capital investments that Mendelsohn oversees have returned 21.6 per cent a year over the past decade, the endowment estimates.

“I couldn’t have asked for a better set of investors to learn from and work alongside for the past 14 years,” Mendelsohn said in the statement. “I am honoured to be given the opportunity to lead this team, whose wonderful professionals are exceptional not simply for their investment talent, but also for their commitment to the principles that guide Yale’s mission.”

Yale's endowment has beaten its rivals over the past decade

Mendelsohn joined the endowment in 2007 after graduating from Yale with a BA in physics, and for three years captained Swensen’s beloved endowment softball team, the Stock Jocks. 

Charles Skorina, an investment industry headhunter, was sceptical that Yale had to kick over many stones before they appointed Mendelsohn, given that Swensen’s long battle with cancer gave the endowment plenty of time to find a successor.

“Culture, institutional memory and tradition are key ingredients in Yale’s endowment performance and Matthew Mendelsohn was the odds-on favourite when we looked closely at the [Yale Investments Office] staff,” Skorina said. “All Yale, responsible for the highest-performing asset group in the portfolio, and about 36 years old. A bell ringer.”

Nonetheless, Mendelsohn steps into Swensen’s investment shoes at an exceptionally challenging time for the money management industry. 

For much of Swensen’s time at the helm of Yale endowment, both bond and equity markets enjoyed a remarkable boom that has propelled financial returns far beyond the historical norms. 

More recently, aggressive central bank stimulus in the wake of the financial crisis and then the Covid-19 crisis has pushed valuations across most major markets to record highs. Many industry executives and analysts fret that this will inevitably erode future returns. 

Bar chart of annual, inflation-adjusted return forecasts for the next seven years (%) showing GMO predicts grim stretch for most investors due to stretched prices

The investment group AQR estimates that, given current valuations, a traditional portfolio split between 60 per cent in equities and 40 per cent in fixed income will return just 2.1 per cent annually after inflation over the next five to 10 years. GMO, another asset manager, forecasts that every major asset class will lose money in real terms over the coming seven years.

Meanwhile, the alternative investments that made Swensen’s name and burnished the endowment’s record are nowadays commonplace, with billions of dollars pouring into private equity, venture capital, natural resources and real estate. Many experts worry that returns in these areas will also fall as a result. 

“Though we will evolve to face new challenges, the future will no doubt rhyme with the past as we build off of a strong foundation,” Mendelsohn said. 

The reporters on this story are on Twitter at @robinwigg and @chrisflood_FTfm and email at robin.wigglesworth@ft.com and chris.flood@ft.com

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