David Chessell, a director at Access Capital Advisers, a consultancy known for its taste for alternatives, also rejects the notion that most of the worthwhile assets in the sector have been bought. “The world is a very big place,” he says from Mumbai, where at presstime he was scouting office properties for a co-investment deal with Indian firm Tata Realty Holdings and a portfolio of clients, including Westscheme.

Those other secrets of the academy

“The investment world is different from most other worlds,” writes Kennedy in a 2008 Cambridge Associates publication, Endowment Management. “In other professions, doing more of what has worked is usually the route to success…and committee members who cannot grasp this fundamental fact often end up chasing last year’s winners, inflicting considerable damage on the portfolio as a result.” Since asset allocations must earn approval from fund boards and committees, there is value in looking beyond the first-mover advantages gained by the top endowments in emerging sectors, and instead focusing on their decision-making approaches.

After all, their portfolios are produced by combinations of skill and governance. Secrets points out that while volumes have been written on the pricing, risks and returns of various assets, the “organisational economics of investing” are harder to quantify.

The risks taken by endowments involve being early, taking a contrary view, and sometimes being wrong. Secrets shows that the overall performance of endowments is counter-cyclical to the mainstream: in the mid-1990s, their excess returns were near 10 per cent; however, during 2000 and 2001, they generated 15 per cent alpha. In taking such risks, they draw on sophisticated advisers and contacts and exploit their high tolerances for illiquidity. When endowments are advised by the likes of Cambridge Associates (which was early in recommending venture capital, leveraged buy-outs, hedge funds, timberland, oil and gas opportunities to clients) and have networks of alumni in the top echelons of the investment world, it is difficult for the mainstream to compete seriously with the universities.

When Yale identified that oil and gas was an attractive but immature market with diversification and inflation-hedging benefits in the 90s, it saw that expertise in developing oil and gas fields would add value in any subsequent investments and that a scarcity of adequately resourced and incentivised entrepreneurs existed in this space. Pursuing this theme, the endowment sought professionals from the oil and gas industries to be involved in related investment programs. “They plucked people out of companies to essentially set up private equity oil and gas ventures that managed fields directly,” Abley says. Within a decade, Yale had seeded 16 specialist managers.

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