The Downside of the Yale Endowment Model - part 1

aka "What happens when you are 70% long illiquid beta and the fed tightens."

As far as we can see, the downside of the Dale Swensen's Yale endowment portfolio model is it's overweight illiquid, long duration assets like PE/VC.

What's the impact of 300bps of tightening on a portfolio with 30yr duration?

What happens to 'dry powder' when LPs can't make capital calls?

Ed Conway @EdConwaySky

🚨NEW🚨 On the @bankofengland intervention: Am told the BoE were responding to a “run dynamic” on pension funds - a wholesale equivalent of the run which destroyed Northern Rock. Had they not intervened, there would have been mass insolvencies of pension funds by THIS AFTERNOON.

$540bn of dry powder according to WSJ. But a lot of that capital still needs to be called.

Asset / Liability management is important, but mark to market losses get realized today if liquidity for financial players comes under stress.

Campbell @abcampbell

Gunjan Banerji @GunjanJS

U.S. pension plans are also facing margin calls Pensions managed by consulting firm and insurance brokerage Willis Towers Watson have posted tens of millions of dollars in collateral over the course of this year as bond prices have fallen https://t.co/ottM1HcBCL

So what happens to those long duration portfolios when when dollar strength forces EM central banks to sell reserves (aka liquidate treasuries) and that drives up US interest rates further?

Right on cue..

Disclaimers

Charts and graphs included in these materials are intended for educational purposes only and should not function as the sole basis for any investment decision.

THERE CAN BE NO ASSURANCE THAT ROSE TECHNOLOGY INVESTMENT OBJECTIVES WILL BE ACHIEVED OR THE INVESTMENT STRATEGIES WILL BE SUCCESSFUL. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. AN INVESTMENT IN A FUND MANAGED BY ROSE INVOLVES A HIGH DEGREE OF RISK, INCLUDING THE RISK THAT THE ENTIRE AMOUNT INVESTED IS LOST. INTERESTED PROSPECTS MUST REFER TO A FUND’S CONFIDENTIAL OFFERING MEMORANDUM FOR A DISCUSSION OF ‘CERTAIN RISK FACTORS’ AND OTHER IMPORTANT INFORMATION.