Yale Pulls out of Hedge Fund it Helped Found

March 29, 2006 (PLANSPONSOR.com) - Yale University is pulling its $500 million investment from the Children's Investment Fund Management (UK) LLP, a hedge fund of a company, TCI, it was instrumental in founding in 2004.

The Wall Street Journal reports that sources familiar with the matter said officials at Yale were concerned that the $15.2 billion endowment’s position in the fund had grown too large.   Yale divides its money into different pools to be invested in various ways, such as stocks, bonds, hedge funds, private-equity firms and real estate. Among hedge funds, it further divides its investments among managers with a range of strategies.

Yale credited its reliance on “nontraditional asset classes,” which include hedge funds, for a 22.3% return on the endowment’s investments in 2005, according to the WSJ.   The University’s investment office has a target of putting a quarter of its assets into hedge funds and 17% into private-equity funds.

For Yale, which has the second-largest US university endowment after Harvard (See Harvard Enjoys 19.2% FY 2005 Endowment Performance), the split with TCI means it will be handed a chunk of money that needs to be reinvested.   For TCI, Yale’s removal, while significant, is not expected to have a huge impact on the $7.5 billion fund.   Since the fund’s inception, TCI has more than doubled its clients’ investments, and there is also increasing interest in hedge fund investments by institutional investors.

A recent study found that educational endowments achieved higher returns by increasing allocations to alternative strategies (See Ed. Endowment 2005 Returns Lower but Still Respectable ).