Investor Responsibility

Why doesn’t Yale disclose its Endowment holdings?

Yale’s longstanding policy is to preserve the confidentiality of its Endowment holdings, chiefly to honor its contractual obligations to third party investment managers.  Yale’s investment partners are among the best in the world, and part of their competitive advantage (and therefore Yale’s) is that they are skilled at finding differentiated investments.

In addition to maintaining the confidentiality of portfolio holdings, Yale seeks to maintain the confidentiality of its manager relationships.  Because a key ingredient to Yale’s success is identifying the best investment managers, disclosing those relationships would likely increase competition for access to those managers.

Yale’s Investment Committee and the Corporation Commitee for Investor Responsibility (CCIR) have transparency into the portfolio upon request to provide independent oversight without damaging investment advantages for Yale and its partners.

What does it mean for a company to show up on Yale’s Form 13-F?

Although Yale’s Form 13-F lists securities over which Yale exercises investment discretion, it does not often (or even usually) mean that Yale has invested directly in that company.  In most cases, a holding listed on Yale’s Form 13-F results from a liquidating distribution of that security from a third-party investment manager.

Yale manages the Endowment primarily by hiring third-party investment managers with a differentiated advantage in finding investments.  When a manager is ready to exit the position, they may choose to liquidate it for cash and distribute the cash to investors or distribute those securities directly to investors.  Yale’s general practice is to sell the securities it receives from its managers, subject to legal or other constraints.  However, if the Form 13-F reference date falls between the date Yale receives its shares and the date Yale completes an orderly liquidation, a liquidating position will show up on Yale’s Form 13-F.  A company can, therefore, show up multiple times on Yale’s Form 13-F when an orderly liquidation occurs in several distributions across multiple quarter-ends.

Another reason a security could show up on Yale’s Form 13-F is if it was gifted to Yale.  Similar to distributions from third-party investment managers, Yale’s general practice is to sell the gifted security, but timing could be such that Yale happens to hold it on the Form 13-F reference date.

What does it mean for an index fund or ETF to show up on Yale’s Form 13-F? Does Yale’s ethical investment policy preclude it from holding an index or ETF that might include a prohibited stock?

In addition to single-name securities, Yale’s Form 13-F may disclose holdings of index funds and/or exchange-traded funds (ETFs).  Index funds are commonly held investment funds that have broadly-diversified portfolios that track specific benchmarks, such as the S&P 500.  The sponsor of the index fund does not make active bets on the underlying securities; rather, the basket comprising the portfolio is based on a passively determined cross-section of the market the benchmark seeks to capture.  Index funds and ETFs are employed by Yale Investments as a passive portfolio management tool to rebalance the Endowment and not as an active strategy.  Unlike relationships with third-party investment managers, Yale Investments does not engage or interact with sponsors of index funds and ETFs.

Any single position held by the Index or ETF typically would represent only a very small percentage of the Endowment.  For example, Yale’s Form 13-F disclosed that Yale held an investment in the Vanguard FTSE Emerging Markets ETF (VWO) as of December 31, 2021.  As of that date, Yale’s exposure to VWO represented 0.8% of the Endowment’s value, and the ETF comprised 5,306 different stocks in emerging markets around the world; thus, any single company represented a very small percentage of the Endowment.  In addition, because rebalancing can occur as often as daily, Yale’s exposure to a given index fund could change frequently.  Given the purpose and limited use of index funds and ETFs in the Endowment, and their importance as a portfolio management tool, Yale’s ethical investment policy does not prevent the holding of such funds.

How quickly can Yale dispose of an investment if it becomes the subject of a divestment policy? 

Yale’s third-party investment managers typically have full control over the investments they manage.  As a result, if Yale’s ethical investment policies changes such that an existing holding becomes subject to divestment, divestment timing will depend on the relationship Yale has with the manager, including the pre-existing terms of its contractual agreements.  In general, if Yale is in good standing with the manager and the underlying investment is a publicly-traded security, there is a high likelihood that the manager can eliminate that security from Yale’s account without much delay.  However, if either of those conditions is absent or if the account is commingled with other investors, then Yale may be required to hold the investment for a longer period of time.  Yale Investments diligently works to pursue divestment until it is complete. 

Importantly, when Yale formally adopts a policy of divestment, it does not mean that Yale actually owns such holdings. In fact, it has been rare that the Endowment has actually held investments deemed ineligible at the time of such determination.