Wednesday, March 29, 2006

Yale Yanks Some Hedgie Money

The Wall Street Journal reports today -- here's a subscriber-only link -- that Yale University is yanking $500 million that its endowment had invested with a hotshot hedge fund manager named Christopher Hohn.

"Officials at Yale. . . were concerned that the $15.2 billion endowment's position in Mr. Hohn's fund had grown too large," said the Journal, quoting "people familiar with the matter."

The reason newspapers have to quote "people familiar with the matter" when they do stories like this is that university endowments are ridiculously opaque. And when it comes to their investments in hedge funds, they clam up like the 1950s Kremlin. Leaf through any endowment's annual report and you'll see what I mean.

As I describe in Wall Street Versus America, Yale is in a league of its own when it comes to being uninformative about it endowment, treating serious inquiries from students -- their putative "customers" -- with arrogance and condescension. Yale is enamored of hedge funds generally and the Farallon hedge fund group in particular, and efforts by students to get the university to come clean about its holdings have run into a brick wall.

Yale has been boasting about all kinds of terrific returns, which it attributies to its hedgie investing. Unfortunately, if you believe in efficient markets as I do, you know that terrific returns can become not-so-terrific fairly rapidly. That's particularly true when it comes to certain types of hedge fund investments.

It's time for university endowments open their books and reveal their exposure to all classes of investments -- particularly hedge funds. If they won't -- and believe me, they won't -- then students may want to follow the example of their counterparts at Yale and other universities. They got some hedge fund data anyway and put it on the web. Here's their website.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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