Yale varsity finds value in distressed corporate debt
Yale University, whose endowment dropped $5.9 billion in six months because of the recession, is pursuing a recovery by acquiring distressed debt.
By Bloomberg |
NEW YORK: Yale University, whose endowment dropped $5.9 billion in six months because of the recession, is pursuing a recovery by acquiring distressed debt.
���There are some really extraordinary opportunities in the credit world,��� said David Swensen, the school���s investment chief, in a phone interview from his office at the New Haven, Connecticut, university. ���Everything, from bank loans to investment-grade bonds to less-than-investment grade bonds, is priced at really extraordinarily cheap levels.���
Swensen, 54, increased Yale���s endowment to $22.9 billion on June 30, from $1 billion in 1985 when he assumed the job, making it the second-wealthiest university in the US.
The school estimated on December 16 that the fund had fallen 25%, to $17 billion, because of the global financial crisis. Swensen, who has updated his 2000 book on investing for re-release January 6, said periodic losses are inevitable in a portfolio tilted toward stocks and built to grow over many years.
���There isn���t an investment strategy that can produce the kind of long-term results we���ve generated at Yale that isn���t going to post the occasional negative return,��� Swensen said in the December 30 interview.
���I don���t think people should disregard the book because of the market trauma of the last few months. We���re not even done with the current fiscal year. Judging a long-term investment strategy based on the results of a five- to six-month period is foolish beyond words.���
Among Swensen���s core principles is the importance of diversifying holdings while focusing on equities. In a recession, the advantages of diversification get overwhelmed by investors��� selling equities in favor of US Treasury bonds in a ���flight to quality,��� he said. ���When you have a market in which any type of equity exposure is being punished, it���s going to hurt long-term investors,��� he said.
In the current environment, distressed corporate securities can produce ���equity-like��� returns, Swensen said. ���You want to make sure you���re with companies that have the ability to survive in a really tough economic environment��� he said, declining to name any of the companies.
���There are some really extraordinary opportunities in the credit world,��� said David Swensen, the school���s investment chief, in a phone interview from his office at the New Haven, Connecticut, university. ���Everything, from bank loans to investment-grade bonds to less-than-investment grade bonds, is priced at really extraordinarily cheap levels.���
Swensen, 54, increased Yale���s endowment to $22.9 billion on June 30, from $1 billion in 1985 when he assumed the job, making it the second-wealthiest university in the US.
The school estimated on December 16 that the fund had fallen 25%, to $17 billion, because of the global financial crisis. Swensen, who has updated his 2000 book on investing for re-release January 6, said periodic losses are inevitable in a portfolio tilted toward stocks and built to grow over many years.
���There isn���t an investment strategy that can produce the kind of long-term results we���ve generated at Yale that isn���t going to post the occasional negative return,��� Swensen said in the December 30 interview.
���I don���t think people should disregard the book because of the market trauma of the last few months. We���re not even done with the current fiscal year. Judging a long-term investment strategy based on the results of a five- to six-month period is foolish beyond words.���
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Among Swensen���s core principles is the importance of diversifying holdings while focusing on equities. In a recession, the advantages of diversification get overwhelmed by investors��� selling equities in favor of US Treasury bonds in a ���flight to quality,��� he said. ���When you have a market in which any type of equity exposure is being punished, it���s going to hurt long-term investors,��� he said.
In the current environment, distressed corporate securities can produce ���equity-like��� returns, Swensen said. ���You want to make sure you���re with companies that have the ability to survive in a really tough economic environment��� he said, declining to name any of the companies.
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