耶鲁捐赠基金2006年（耶鲁投资办公室年度报告）

The Yale Endowment

Endowment Highlights

Fiscal Year

2006 2005 2004 2003 2002

Asset Allocation (as of June 30)

Endowment Market Value 1950–2006 $20

$16

$12 Billions

$8

$4

Contents .

1. Introduction 2 2. The Yale Endowment 3 3. Investment Policy 4 4. Spending Policy 14 5. Investment Performance 18 6. Management and Oversight 20

Front cover: Wall carving from west façade, Sterling Memorial Library. Right: A window in Trumbull College.

Introduction Yale’s Endowment generated extraordinarily strong results in fiscal year 2006, as investment returns of 22.9 percent produced a record-setting 1 gain of $3.4 billion. For the third straight year, Yale enjoyed returns in the neighborhood of twenty percent, a series of striking results in a period of moderate returns for domestic marketable securities. Over the past ten years, the Endowment grew from $4.9 billion to $18.0 billion. With annual net investment returns of 17.2 percent, the Endowment’s performance exceeded its benchmark and outpaced institutional fund indices. The Yale Endowment’s two-decade record of 15.4 percent per annum produced a 2006 Endowment value more than ten times that of 1986. Yale’s superb long-term record resulted from disciplined and diversified asset allocation policies, superior active management results, and strong capital market returns. Spending from Endowment grew during the last decade from $170 million to $616 million, an annual growth rate of nearly 14 percent. On a relative basis, Endowment contributions expanded from 17 percent of total revenues in fiscal 1996 to 32 percent in fiscal 2006. Next year, spending will amount to $676 million, or 34 percent of projected revenues. Yale’s spending and investment policies have provided handsome levels of cash flow to the operating budget for current scholars while preserving Endowment purchasing power for future generations.

Endowment Growth Outpaces Inflation 1950–2006 $20 $18

$16 $14

$12

$10 Billions $8

$6

$4

The Yale Endowment Totaling $18.0 billion on June 30, 2006, the Yale Endowment contains thousands of funds with a variety of designated purposes and restrictions. 2 Approximately four-fifths of funds constitute true endowment, gifts restricted by donors to provide long-term funding for designated purposes. The remaining one-fifth represent quasi-endowment, monies that the Yale Corporation chooses to invest and treat as endowment. Donors frequently specify a particular purpose for gifts, creating endowments to fund professorships, teaching, and lectureships (23 percent), scholarships, fellowships, and prizes (18 percent), maintenance (4 percent), books (3 percent), and miscellaneous specific purposes (25 percent). The remaining funds (27 percent) are unrestricted. Thirtyfour percent of the Endowment benefits the overall University, with remaining funds focused on specific units, including the Faculty of Arts and Sciences (31 percent), the professional schools (22 percent), the library (7 percent), and other entities (6 percent). Although distinct in purpose or restriction, Endowment funds are commingled in an investment pool and tracked with unit accounting much like a large mutual fund. Endowment gifts of cash, securities, or property are valued and exchanged for units that represent a claim on a portion of the whole investment portfolio. In fiscal 2006 the Endowment provided $616 million, or 32 percent, of the University’s $1,932 million operating income. Other major sources of revenues were grants and contracts of $526 million (27 percent), medical services of $303 million (16 percent), net tuition, room, and board of $236 million (12 percent), gifts of $93 million (5 percent), other investment income of $65 million (3 percent), and other income and transfers of $94 million (5 percent).

Endowment Fund Allocation Operating Budget Revenue Fiscal Year 2006 Fiscal Year 2006

Grants & Contracts Miscellaneous Professorships Specific Purposes Tuition, Room, Board

Medical Services Scholarships Endowment Unrestricted Gifts Books Maintenance Other Investment Income Other Income

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Investment Policy Yale’s portfolio is structured using a combination of academic theory and informed market judgment. The theoretical framework relies on mean3 variance analysis, an approach developed by Nobel laureates James Tobin and Harry Markowitz, both of whom conducted work on this important portfolio management tool at Yale’s Cowles Foundation. Using statistical techniques to combine expected returns, variances, and covariances of investment assets, Yale employs mean-variance analysis to estimate expected risk and return profiles of various asset allocation alternatives and to test sensitivity of results to changes in input assumptions. Because investment management involves as much art as science, qualitative considerations play an extremely important role in portfolio decisions. The definition of an asset class is quite subjective, requiring precise distinctions where none exist. Returns and correlations are di∞cult to forecast. Historical data provide a guide, but must be modified to recognize structural changes and compensate for anomalous periods. Quantitative measures have di∞culty incorporating factors such as market liquidity or the influence of significant, low-probability events. In spite of the operational challenges, the rigor required in conducting mean-variance analysis brings an important perspective to the asset allocation process. The combination of quantitative analysis and market judgment employed by Yale produces the following portfolio:

June Current Asset Class 2006 Target

Absolute Return 23.3% 25.0% Domestic Equity 11.6 12.0 Fixed Income 3.8 4.0 Foreign Equity 14.6 15.0 Private Equity 16.4 17.0 Real Assets 27.8 27.0 Cash 2.5 0.0

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The target mix of assets produces an expected real (after inflation) long-term growth rate of 6.3 percent with a risk (standard deviation of returns) of 11.8 percent. Primarily because of the cash holdings, the actual allocation produces a portfolio expected to grow at 6.1 percent with a risk of 11.5 percent. The University’s measure of inflation is based on a basket of goods and services specific to higher education that tends to exceed the Consumer Price Index by approximately one percentage point. At its June 2006 meeting, Yale’s Investment Committee adopted a number of changes in the University’s policy portfolio allocations. The combination of valuation increases in energy, timber, and real estate and recent large commitments to timber and real estate pushed the real assets allocation above its target of 25.0 percent. Based on strong investment characteristics, the Committee approved an increase in the real assets target from 25.0 percent to 27.0 percent. The Committee also increased Yale’s allocation to foreign equity from 14.0 percent to 15.0 percent based on the attractive opportunities Yale’s managers continue to find in ine∞cient emerging markets. These increases were funded by a 2.0 percentage point decrease in domestic equity to 12.0 percent and a 1.0 percentage point decrease in fixed income to 4.0 percent. The need to provide resources for current operations as well as preserve purchasing power of assets dictates investing for high returns, causing the Endowment to be biased toward equity. In addition, the University’s vulnerability to inflation further directs the Endowment away from fixed income and toward equity instruments. Hence, 96.0 percent of the Endowment is targeted for investment in assets expected to produce equity-like returns, through holdings of domestic and international securities, real assets, and private equity. Over the past two decades, Yale reduced dramatically the Endowment’s dependence on domestic marketable securities by reallocating assets to nontraditional asset classes. In 1986, 75 percent of the Endowment was committed to U.S. stocks, bonds, and cash. Today, target allocations call for 16 percent in domestic marketable securities, while the diversifying assets of foreign equity, private equity, absolute return strategies, and real assets dominate the Endowment, representing 84 percent of the target portfolio. The heavy allocation to nontraditional asset classes stems from their return potential and diversifying power. Today’s actual and target portfolios have significantly higher expected returns and lower volatility than the 1986 portfolio. Alternative assets, by their very nature, tend to be less e∞ciently priced than traditional marketable securities, providing an opportunity to exploit market ine∞ciencies through active management. The Endowment’s long time horizon is well suited to exploiting illiquid, less e∞cient markets such as venture capital, leveraged buyouts, oil and gas, timber, and real estate.

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Asset Class Yale’s six asset classes are defined by di≠erences in their expected response Characteristics to economic conditions, such as price inflation or changes in interest rates, and are weighted in the Endowment portfolio by considering riskadjusted returns and correlations. The University combines these assets in such a way as to provide the highest expected return for a given level of risk.

Absolute Return In July 1990, Yale became the first institutional investor to pursue absolute return strategies as a distinct asset class, beginning with a target allocation of 15.0 percent. Designed to provide significant diversification to the Endowment, absolute return investments seek to generate high long-term real returns by exploiting market ine∞ciencies. Approximately half of the portfolio is dedicated to event-driven strategies, which rely on a very specific corporate event, such as a merger, spin-o≠, or bankruptcy restructuring to achieve a target price. The other half of the portfolio contains value-driven strategies, which involve hedged positions in assets or securities that diverge from underlying economic value. Today, the absolute return portfolio is targeted to be 25.0 percent of the Endowment, above the average educational institution’s allocation of 18.6 percent to such strategies. Absolute return strategies are expected to generate real returns of 6.0 percent with risk levels of 10.0 percent for event-driven strategies and 15.0 percent for value-driven strategies. Unlike traditional marketable securities, absolute return investments provide returns largely independent of overall market moves. Over the past ten years, the portfolio exceeded expectations, returning 12.9 percent per year with essentially no correlation to domestic stock and bond markets. An important attribute of Yale’s investment strategy concerns the alignment of interests between investors and investment managers. To that end, absolute return accounts are structured with performancerelated incentive fees, hurdle rates, and clawback provisions. In addition, managers invest a significant portion of their net worth alongside Yale, enabling the University to avoid many of the pitfalls of the principalagent relationship.

Domestic Equity Finance theory predicts that equity holdings will generate returns superior to those of less risky assets such as bonds and cash. The predominant asset class in most U.S. institutional portfolios, domestic equity, represents a large, liquid, and heavily researched market. While the average educational institution invests 29.1 percent of assets in domestic equities, Yale’s target allocation to this asset class is only 12.0 percent. The domestic equity portfolio has an expected real return of 6.0 percent with a standard deviation of 20.0 percent. The Wilshire 5000 Index serves as the portfolio benchmark.

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Despite recognizing that the U.S. equity market is highly e∞cient, Yale elects to pursue active management strategies, aspiring to outperform the market index by a few percentage points annually. Because superior stock selection provides the most consistent and reliable opportunity for generating excess returns, the University favors managers with exceptional bottom-up fundamental research capabilities. Managers searching for out-of-favor securities often find stocks that are cheap in relation to current fundamental measures such as book value, earnings, or cash flow. Yale’s managers tend to emphasize small-capitalization stocks, as they are less e∞ciently priced and o≠er greater opportunities to add value through active management. Recognizing the di∞culty of outperforming the market on a consistent basis, Yale searches for managers with high integrity, sound investment philosophies, strong track records, superior organizations, and sustainable competitive advantages.

Fixed Income Fixed income assets generate stable flows of income, providing greater certainty of nominal cash flow than any other Endowment asset class. The bond portfolio exhibits a low covariance with other asset classes and serves as a hedge against financial accidents or periods of unanticipated deflation. While educational institutions maintain a substantial allocation to fixed income instruments and cash, averaging 17.6 percent, Yale’s target allocation to fixed income constitutes only 4.0 percent of the Endowment. Bonds have an expected real return of 2.0 percent with risk of 10.0 percent. The Lehman Brothers U.S. Treasury Index serves as the portfolio benchmark. Yale is not particularly attracted to fixed income assets, as they have the lowest historical and expected returns of the six asset classes that make up the Endowment. In addition, the government bond market is arguably the most e∞ciently priced asset class, o≠ering few opportunities to add significant value through active management. Based on skepticism of active fixed income strategies and belief in the e∞cacy of a highly structured approach to bond portfolio management, the Investments O∞ce chooses to manage Endowment bonds internally. In spite of an aversion to market timing strategies, credit risk, and call options, Yale manages to add value consistently in its management of the bond portfolio. Willingness to accept illiquidity leads to superior investment results without impairing the portfolio protection characteristics of high-quality fixed income.

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Utility of Diversification

Economists teach “there ain’t no such thing as a free lunch.” While explicit and implicit costs permeate the field of economics, financial markets contain a marvelous exception. Harry Markowitz, pioneer of modern portfolio theory, maintains that portfolio diversification is that exceptional free lunch. By combining assets that vary in response to forces that drive markets, welldiversified, more e∞cient portfolios can be created. At a given risk level, properly diversified portfolios provide higher returns than less well-diversified portfolios. For a given return level, well-diversified portfolios produce returns with lower risk. A free lunch indeed! Yale’s Endowment pioneered diversification into alternative asset classes like absolute return, real assets, and private equity. Today the University boasts one of the most diversified institutional portfolios, with allocations to six asset classes with weights ranging from 4 percent to 27 percent. Yale’s allocations of 12 percent to domestic equity and 4 percent to fixed

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income cause only 16 percent of the University’s assets to be invested in traditional U.S. marketable securities. In contrast, the average endowment has nearly 50 percent of assets in U.S. stocks, bonds, and cash. Yale’s diversification has paid handsome rewards. In the late 1990s, significant exposure to private equity helped the Endowment keep pace with other endowments despite the University’s relatively small allocation to the booming U.S. equity market. After the Internet bubble burst in 2000, strong performance by the absolute return and real assets portfolios, which had lagged overall Endowment performance in the late 1990s, bolstered the Endowment. In fact, despite the collapse of the domestic stock market, Yale continued to generate positive returns; in the three years following the collapse, Yale returned 6.1 percent annually, while the mean return of a broad universe of college and university endowments was -1.6 percent per year. In the last three years, remarkable performance by Yale’s real assets and foreign equity portfolios, combined with solid results from

absolute return and a resurgence in private equity, enabled the Endowment to generate annualized returns of 21.5 percent. These breathtaking returns were generated in an environment where domestic equity returns were in the low double digits and bond returns were barely above zero. Diversification has been an important factor in helping Yale generate an extraordinary long-term investment record. Going forward, Yale continues to expect superior results from its diversified approach to investing. The University’s target portfolio produces an expected real (after inflation) return of 6.9 percent with a risk (standard deviation of returns) of 11.8 percent. Using Yale’s standard capital markets assumptions, the average college asset allocation produces an expected real return of only 5.8 percent with a risk of 12.1 percent. Yale’s diversified portfolio promises higher expected returns with lower risk, providing the University with a reasonable expectation of a free lunch.

Old Campus, with a view of McClellan Hall and (at right) Linsly-Chittenden Hall.

Futility of Diversification

Sticking with portfolio diversification can be painful in the midst of a bull market. When mindless momentum strategies produce great returns, market observers wonder about the time and e≠ort expended in creating a well-structured portfolio. Consider the recent stock market bubble. For the five years ending June 30, 2000, the S&P 500 returned an amazing 23.8 percent per year, trouncing the mean educational endowment return of 16.9 percent. Simply owning the S&P 500 would have generated a wealth multiple of 2.9 times, while the average endowment lagged with a multiple of 2.2 times. During a roaring bull market, diversification seems to punish investors. Indeed, institutional investors who sought Markowitz’s free lunch by holding foreign equities saw those diversifying assets lag terribly. During the five years when the S&P produced 20-percent-plus returns, developed foreign markets, as measured by the MSCI EAFE Index, generated an 11.3

Linonia Courtyard in the autumn, Branford College.

percent annual return, while emerging markets, as measured by the MSCI EM Index, returned 1.0 percent annually. Alternative asset classes like absolute return and real assets, which generate equity-like returns with low risk, fell hopelessly behind the blistering U.S. stock market. By the late 1990s, many investors questioned the wisdom of owning any assets other than U.S. equities, especially highflying technology stocks, asserting the inherent superiority of American companies and the inevitable dominance of hightech businesses. Making the mistake of extrapolating future returns from a strong historical base, investors picked the absolute worst time to abandon diversification and increase allocation to U.S. equities, as the stock market’s remarkable run had brought valuations to unprecedented heights. Not surprisingly, U.S. equity markets eventually collapsed. In the five years following June 30, 2000, the S&P 500

returned -2.4 percent per annum and the formerly popular technology stocks did even worse, with the NASDAQ Composite Index returning -11.9 percent annually. Each asset class that had dampened returns in the late 1990s—bonds, foreign equities, absolute return, and real assets—drove the Endowment to a series of positive returns in the face of an equity bear market. In spite of the opportunity costs of diversification in the late 1990s, the University continued to believe in the importance of a properly diversified portfolio with superior risk and return characteristics. When the bull market in U.S. equities finally came to a halt in the spring of 2000, Yale was in an extremely strong position to generate handsome returns. In fact, the University’s discipline of sticking with a diversified portfolio contributed to the Endowment’s achievement of the top longterm record of any college or university endowment.

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Foreign Equity Investments in overseas markets give the Endowment exposure to the global economy, providing substantial diversification along with opportunities to earn above-market returns through active management. Emerging markets, with their rapidly growing economies, are particularly intriguing, causing Yale to target more than one-half of its foreign portfolio to developing countries. Yale’s foreign equity target allocation of 15.0 percent stands slightly below the average endowment’s allocation of 20.0 percent. Expected real returns for emerging equities are 8.0 percent with a risk level of 25.0 percent, while developed equities are expected to return 6.0 percent with risk of 20.0 percent. The portfolio is measured against a composite benchmark of developed markets, measured by the Morgan Stanley Capital International (MSCI) Europe, Australasia, and Far East Index, and emerging markets, measured by the MSCI Emerging Markets Index. Yale’s investment approach to foreign equities emphasizes active management designed to uncover attractive opportunities and exploit market ine∞ciencies. As in the domestic equity portfolio, Yale favors managers with strong bottom-up fundamental research capabilities. Capital allocation to individual managers takes into consideration the country allocation of the foreign equity portfolio, the degree of confidence Yale possesses in a manager, and the appropriate asset size for a particular strategy. In addition, Yale attempts to exploit compelling undervaluations in countries, sectors, and styles by allocating additional capital and, perhaps, by hiring new managers to take advantage of the opportunities.

Wrexham Tower, from Branford College courtyard. 10

Private Equity Private equity o≠ers extremely attractive long-term risk-adjusted return characteristics, stemming from the University’s strong stable of valueadded managers that exploit market ine∞ciencies. Yale’s private equity investments include participations in venture capital and leveraged buyout partnerships. The University’s target allocation to private equity of 17.0 percent far exceeds the 6.4 percent actual allocation of the average educational institution. In aggregate, the private equity portfolio is expected to generate real returns of 11.4 percent with risk of 29.0 percent. Yale’s private equity program, one of the first of its kind, is regarded as among the best in the institutional investment community. The University is frequently cited as a role model by other investors pursuing this asset class. Since inception, private equity investments have generated a 30.6 percent annualized return to the University. The success of Yale’s program led to a 1995 Harvard Business School case study— “Yale University Investments O∞ce”—by Professors Josh Lerner and Jay Light. The popular case study was updated in 1997, 2000, and 2003. Yale’s private equity assets concentrate on partnerships with firms that emphasize a value-added approach to investing. Such firms work closely with portfolio companies to create fundamentally more valuable entities, relying only secondarily on financial engineering to generate returns. Investments are made with an eye toward long-term relationships—generally, a commitment is expected to be the first of several— and toward the close alignment of the interests of general and limited partners. Yale avoids funds sponsored by financial institutions because of the conflicts of interest and sta≠ instability inherent in such situations.

Yale University Art Gallery, Louis Kahn building; view from Wurtele Sculpture Garden, 2006. 11

Real Assets Real estate, oil and gas, and timberland share common characteristics: sensitivity to inflationary forces, high and visible current cash flow, and opportunity to exploit ine∞ciencies. Real assets investments provide attractive return prospects, excellent portfolio diversification, and a hedge against unanticipated inflation. Yale’s 27.0 percent long-term policy allocation significantly exceeds the average endowment’s commitment of 8.4 percent. Expected real returns are 6.0 percent with risk of 15.0 percent. The real assets portfolio plays a meaningful role in the Endowment as a powerful diversifying tool and a generator of strong returns. Real assets provide relative stability to the Endowment during periods of public market turmoil, at the price of an inability to keep pace during bull markets. Pricing ine∞ciencies in the asset class and opportunities to add value allow superior managers to generate excess returns over a market cycle. Since inception in 1978 the portfolio has returned 17.4 percent per annum. The illiquid nature of real assets combined with the expensive and time-consuming process of completing transactions create a high hurdle for casual investors. Real assets provide talented investment groups with the opportunity to generate strong returns through savvy acquisitions and managerial expertise. A critical component of Yale’s investment strategy is to create strong, long-term partnerships between the Investments O∞ce and its investment managers. In the last decade Yale played a critical role in the development and growth of more than a dozen organizations involved in the management of real assets.

Asset Allocations Yale Educational University Institution Mean

Absolute Return 23.3% 18.6% Domestic Equity 11.6 29.1 Fixed Income 3.8 14.3 Foreign Equity 14.6 20.0 Private Equity 16.4 6.4 Real Assets 27.8 8.4 Cash 2.5 3.3 Data as of June 30, 2006

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Unusual Gifts

While the vast majority of gifts to Yale come in the form of cash and marketable securities, on occasion the University receives donations of real property. Notable items range from patented mining claims to a Lincoln-autographed copy of the Emancipation Proclamation to intellectual property rights on musical works. Although many unusual items are sold, some are maintained for use by students and faculty. Nine patented mining claims located in Nevada came to the University in 1955 as part of the estate of Katherine Kilborn. When a mineral patent is granted by the United States government, it confers a feesimple title to public lands to the holder. In this case, the patents were issued in the 1920s and 1930s by Presidents Herbert Hoover and Warren Harding. In order to obtain a mineral patent, the applicant had to demonstrate to the United States government that minerals existed within the claims in su∞cient quantity to provide a living and that the claims were materially improved for such mining. As part of the Kilborn bequest, the University acquired approximately 86 acres of mountainous land overlooking the Washoe Valley, near Reno, Nevada. Even though the mines never produced any significant amount of minerals, the land ultimately proved to have value for residential development. In the late nineteenth century, Yale’s first professor of paleontology, O.C. Marsh, who was also instrumental in founding the Yale Peabody Museum, led student expeditions into the American West. In 1877, inspired by a newspaper account of the Marsh project, several students in their senior year at Princeton embarked on their own expedition to the Bridger Basin. The results were published as the Paleontological Report of the Princeton Scientific Experiment of 1877. Princeton’s emphasis on fossil invertebrate fieldwork continued until the collections were transferred to the Yale Peabody Museum in 1985. Noteworthy fossils in the collection include beautifully preserved saber-toothed cat skulls, the earliest known and most complete fossil bat, a Green River fish slab with one fish devouring the other, important collections of mammals from Argentina and Bolivia, and the famous fossils of a large herbivorous dinosaur and its baby o≠spring. In 2001, Douglass Campbell (b.a. 1941) left his collection of nearly 100 presidential letters, documents, and signed photographs to Yale University. Over a twenty-

The collection of fossils from the American West acquired from Princeton University in 1985 includes Icaronycteris index, a bat found in sediments of the Green River Formation. This is the oldest known bat fossil and is exquisitely preserved. The specimen includes the full skeleton, as well as remnants of cartilage and wing membranes. The fossil suggests that bats had fully evolved flight by the Eocene, approximately 55 million years ago.

five-year period, Campbell gathered items that were handwritten or signed during the president’s term of o∞ce. Among the noteworthy documents in the collection were letters penned by George Washington, Dwight Eisenhower, and Ronald Reagan; a photograph signed by John Kennedy; and a copy of the Emancipation Proclamation signed by Abraham Lincoln. The donor expressly authorized the University to sell the collection, with the understanding that proceeds from the sale were to be added to the Douglass and Marion Campbell Professorship Endowment in the Department of Economics. The papers of Vladimir Horowitz and Wanda Toscanini Horowitz, donated to the School of Music, include a range of tangible personal property such as correspondence, photographs, recordings, tapes, articles, and Horowitz’s Steinway. Among the highlights of the collection are 218 original, unpublished recordings of Carnegie Hall concerts that acclaimed pianist Vladimir Horowitz gave during the 1940s and 1950s.

The estate of Wanda Toscanini Horowitz provided additional financial support, which was placed in an endowment fund for the collection’s maintenance, protection, and preservation. Additionally, Yale received an interest in the copyrights, royalties, and certain contracts related to the recorded performances of Maestro Horowitz and Maestro Toscanini. The copyrights are special endowment investments managed externally by a licensing agent familiar with protecting and promoting the works of world-renowned classical recording personalities. The goal of the manager is to preserve the artistic integrity and reputation of the maestros’ works and maximize royalty returns from the Toscanini and Horowitz copyrights Bequeathed to the University by his widow, Carlotta Monterey O’Neill, the papers of Eugene O’Neill document his life and work. The collection spans the period from 1872 to 1970, with the bulk of the material dating from the 1930s to the 1950s, and includes books and papers relating to O’Neill’s career, portraits of himself, artwork relating to performances, as well as the copyrights to and royalties of his literary canon. O’Neill wished not only for the preservation of the bequeathed collection, but also for the enhancement of the Yale School of Drama. Royalties from his works support the Eugene O’Neill Collection, the purchase of books in the field of drama, and the establishment of Eugene O’Neill Scholarships to be given to worthy students of playwrighting. Yale’s widely disparate group of generous donors find a broad range of ways to support the University. Whether in the form of a decades-old mining claim or a modern-day electronic funds transfer, donors ensure that current and future scholars will benefit from a truly worldclass educational environment.

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Spending Policy The spending rule is at the heart of fiscal discipline for an endowed institution. Spending policies define an institution’s compromise between the 4 conflicting goals of providing substantial support for current operations and preserving purchasing power of Endowment assets. The spending rule must be clearly defined and consistently applied for the concept of budget balance to have meaning. Yale’s policy is designed to meet two competing objectives. The first goal is to release substantial current income to the operating budget in a stable stream, since large fluctuations in revenues are di∞cult to accommodate through changes in University activities or programs. The second goal is to protect the value of Endowment assets against inflation, allowing programs to be supported at today’s level far into the future. Yale’s spending rule attempts to achieve these two objectives by using a long-term spending rate combined with a smoothing rule that adjusts spending gradually to changes in Endowment market value. The amount released under the spending rule is based on a weighted average of the prior year’s spending adjusted for inflation and an amount determined by applying the target rate to the current Endowment market value.

Spending Growth Surpasses Inflation 1950-2006 $700

$600

$500

$400 Millions

$300

$200

$100

0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 1950 Spending Inflated 1950 Spending from Subsequent Gifts Inflated Actual Spending 14

The spending rule has two implications. First, by incorporating the previous year’s spending the rule eliminates large fluctuations, enabling the University to plan for its operating budget needs. Over the last twenty years, annual changes in spending have been one-third as volatile as annual changes in Endowment value. Second, by adjusting spending toward the long-term target spending level, the rule ensures that spending will be sensitive to fluctuating Endowment market values, providing stability in long-term purchasing power. Despite the conservative nature of Yale’s spending policy, distributions to the operating budget rose from $170 million in fiscal 1996 to $616 million in fiscal 2006. The University projects spending of $676 million from the Endowment in fiscal 2007, representing 34 percent of revenues.

The walkway connecting the courtyards of Saybrook and Branford Colleges. 15

Endowed Funding for Building Maintenance

Yale’s massive physical plant includes More recently, in 1986 Richard N. approximately 240 academic buildings with Rosenfeld (B.A. 1963) allocated funds for nearly 13 million square feet of space on 225 ongoing maintenance of Rosenfeld Hall acres, providing support for about 19,000 after his original contribution funded the students, faculty, and sta≠. With a replace- overhaul of this annex to Timothy Dwight ment cost of $6.1 billion (that is, to recon- College, which contains student rooms as struct Yale’s facilities today would cost $6.1 well as classroom and meeting space. billion), the physical plant represents a Monroe A. Jubitz, Sr. (B.A. 1939) and significant University asset. Virginia Anne Gilder (B.A. 1979) estabEndowment funds for building mainte- lished endowments for the maintenance of nance are an important source of financial Gilder Boathouse in 2000 and 2001, shortly support. The earliest examples of this type Philanthropist John W. Sterling (B.A. 1864) at left, after construction of Yale’s new crew facilof endowment were established to main- photographed with his Yale College roommate, ity on the Housatonic River. Clinton L. Conkling, in their student residence tain existing buildings. One notable fund, in Connecticut Hall in 1863. Mr. Sterling’s 1923 The most significant of Yale’s endowed established in 1914, was a bequest from bequest to the University supported the creation of building funds, as a proportion of the total Lord Strathcona and Mount Royal (LL.D. several buildings, along with an endowed fund for building cost, is the Luce Hall Maintenance 1892), a Scottish-born Canadian railroad their maintenance. Endowment, established in 1996 by the magnate and philanthropist. Yale used the Henry Luce Foundation. For the maintefunds for the maintenance of Strathcona which, dating to 1752, is the oldest existing nance of Luce Hall, the foundation made a Hall (now known as She∞eld-Sterling- structure on campus. gift equal to half the amount that financed Strathcona Hall, or SSS in current campus The year 1923 saw the creation of two the construction of the building itself. lingo), an academic facility named in his important endowed maintenance funds Luce Hall houses the Whitney and Betty honor. His bequest also provided two pro- based on a new model. Whereas previous MacMillan Center for International and fessorships and a graduate fellowship in donors had come forward with endowment Area Studies at Yale. the sciences. Another physical plant gifts for the preservation of existing build- The need to restore and maintain Yale’s endowment came from Henry P. Wright ings, these two funds were established by legacy of existing buildings remains cru(B.A. 1868), the popular first dean of Yale the donor at the time of construction of the cial. In recognition of this need, donors College, who left a bequest in 1944 for the original building. A gift of $250,000 from have added to the University’s endowed upkeep of Wright Hall, the Old Campus William Henry Sage (B.A. 1865) led to the maintenance funds. Sid R. Bass (B.A. residence hall named for him. In addition, building of Sage Hall for the School of 1965), who served on the Yale Corporation one of Yale’s most generous benefactors, Forestry & Environmental Studies (then from 1982 to 1994, made a significant gift Paul A. Mellon (B.A. 1929), contributed known as the School of Forestry). Sage in 1995 for the Sid R. Bass Classroom $500,000 in 1952 for the renovation and gave an additional $50,000 to ensure its Improvement Fund. He also contributed ongoing maintenance of Connecticut Hall, continuing maintenance. Building mainte- generously to extensive renovations of nance funds of more than $3 million were William L. Harkness Hall and Linslypart of the historic Sterling bequest, left by Chittenden Hall. In 1973 a bequest from John William Sterling (B.A. 1864) when he John C. Outhet (B.S. 1924) provided funded a series of buildings that included endowed funding for maintenance and Sterling Memorial Library, the Hall of repair of the Becton Center for Engineering Graduate Studies, the Law Buildings, the and Applied Science, built in 1970, and in Hall of Medicine, and Sterling Divinity 1996 a similar endowment was established Quadrangle. using gifts from donors including Henry P. Other donors have contributed Becton (B.S. 1937). endowed funds to maintain buildings that Altogether, the current market value of they, or members of their family, gave to Yale’s building maintenance funds totals Yale. In 1927, William H. Harkness (B.A. approximately $565 million. The figure, 1922) established a fund with a gift for the while impressive, provides only a small maintenance of the classroom building portion of the amount actually needed to that is named for his father, William L. maintain Yale’s buildings; in accordance Harkness (B.A. 1881), and is known simply with Yale’s spending rule, building mainteas WLH. In 1960, C. Mahlon Kline (ph.b. nance funds distributed a total of approxi1901), donor of the Kline Science Center, mately $19 million in 2006. With the allocated a generous amount for its mainte- University currently spending more than nance. Funds from various sources were $200 million annually on renovations, Yale combined, in 1963, to establish a similar would benefit from more endowed funding endowment for the upkeep of Kline to ensure permanent upkeep of the campus Geology Laboratory. Members of the that, aside from historic importance and Paul Mellon (B.A. 1929), one of the University’s Beinecke family created the Beinecke Rare beauty in its own right, directly contributes most generous benefactors, made possible the Book and Manuscript Library Maintenance to the quality of the Yale teaching and extensive renovation of Connecticut Hall, on Old Fund (1963) which covers some adminis- learning experience. Campus, in 1952 and provided a permanent fund for trative charges as well as building upkeep. upkeep of the building, the oldest at Yale.

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The Capital Replacement Charge

Maintaining the University’s facilities at a balanced budgets, even as its physical smoothed, annual basis, to maintain the level that is competitive with other top uni- assets declined. In reality, revenues did not character and quality of Yale’s physical versities is critical to preserving Yale’s posi- match Yale’s true costs, which should have plant. tion as a preeminent educational institu- included the very real expenses for physical The Yale Corporation adopted the tion. In the past, educational institutions plant maintenance that are accumulated Capital Replacement Charge in 2003 to put failed to include the funding of physical each year. Clearly, every building must the maintenance of its physical plant in plant maintenance in their budgets, with eventually be renovated or replaced; a equilibrium. Under the program, the the result that many institutions su≠ered building’s use by students and faculty in University includes in its operating budget dramatic deterioration in their physical a year brings the need for maintenance a charge that reflects the true annual cost of plants, even as they reported balanced spending closer. Therefore, a truly bal- long-term maintenance. To come up with budgets. To understand the economic real- anced budget must include the costs of an accurate assessment of capital charges, ity of capital consumption required a new each year’s capital consumption. But, outside architects, working closely with approach. Yale’s innovative solution, the because the educational community had Yale sta≠, analyzed the campus, building Capital Replacement Charge (CRC), incor- focused on balancing budgets that did not by building. By drilling down to a level of porates a line item in Yale’s annual budget include an accurate (or even any) deprecia- detail that factored in an individual buildthat reflects the true economic cost of wear tion charge, college and university budgets ing’s windows and doorknobs, the Uniand tear on Yale’s buildings. contained insu∞cient funds for physical versity estimated the useful life of each Historically, Yale followed a pay-as-you- plant maintenance. This was not fair to building and the eventual replacement or go approach, relying almost exclusively on future generations, who would be disad- renovation costs. With a detailed assessdiscretionary funds to address capital vantaged with lesser facilities or who ment of the likely timing and cost of future maintenance projects as they arose. When would be forced to fund a disproportionate maintenance, Yale calculated an estimated work needed to be done, the University amount of capital spending. level of annual support needed to fund secured money from any source it could, In the late 1980s and early 1990s, Yale long-term maintenance; in 2006, that including the operating budget, gifts, and regained financial strength, allowing it to figure totaled $164 million, or approxiborrowing. This approach worked during address the growing problems in its physi- mately 2.7 percent of the estimated $6.1 periods of economic strength, but in the cal plant. In 1996, Yale began incorporating billion replacement value of Yale’s facilities. 1970s, when Yale, along with other univer- in the budget depreciation charges that Because funding the full CRC at its sities, confronted financial di∞culties, the more closely matched economic reality. inception would have been disruptive to University focused its scarce resources on Even so, a comprehensive policy was Yale’s programs, the University has been critical operating expenses, necessarily needed to preserve inter-generational gradually incorporating the CRC in the reducing the money spent on facilities. The equity and ensure that the University budget. In 2006 the operating budget conresult was a sharp cutback in the long-term maintained state-of-the-art facilities. In tributed $98 million of the $164 million maintenance performed on Yale’s physical short, Yale needed a policy that kept the capital replacement equilibrium level. The plant. By the late 1980s, nearly two decades value of its physical plant in equilibrium. University expects to fund the full CRC in of underinvestment left Yale’s campus in a Much as a prudent endowment spending its operating budget by 2010. With the state most kindly described as genteel rule maintains the endowment’s purchas- introduction of the CRC and the discipline poverty. ing power so as not to disadvantage future it imposes, Yale ensures that both current The deterioration of Yale’s physical generations of scholars, a responsible and future generations of scholars will plant raised a fundamental question: how approach to building maintenance requires benefit from Yale’s extraordinary physical had Yale balanced budgets throughout the devoting adequate current resources, on a assets. 1970s, even as the state of its facilities clearly declined? The answer lay in the quirks of the accounting conventions used by educational institutions. Yale’s financial statements, like those of other universities, did not include a depreciation charge (which is meant to approximate the decline in value of physical assets in a given year) until 1990, and even after depreciation was introduced, it was based on the historical cost of buildings, unadjusted for changes in market values or inflation. In other words, until 1990, Yale did not account at all for the decline in its physical assets; after 1990, the University did so at a level that dramatically understated economic reality, because depreciation was based on values that were out of date by years, if not decades or centuries. Based on standard accounting conven- The Beinecke Rare Book and Manuscript Library, shown during construction in 1961–1963, is one of relatively few campus buildings for which a maintenance endowment has been created (the gift of members of tions, up until the 1990s Yale reported the Beinecke family).

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Investment Performance Yale has produced excellent investment returns. Over the ten-year period ending June 30, 2006, the Endowment earned an annualized 17.2 percent 5 return, net of fees, placing it in the top one percent of large institutional investors. Endowment outperformance stems from sound asset allocation policy and superior active management. Yale’s long-term superior performance relative to its peers and benchmarks creates substantial wealth for the University. Over the ten years ending June 30, 2006, Yale added $8.5 billion relative to its composite benchmark and $9.1 billion relative to the average return of a broad universe of college and university endowments.

Performance by Yale’s long-term asset class performance continues to be outstanding. In Asset Class the past ten years every asset class posted superior returns, significantly outperforming benchmark levels. Over the past decade, the absolute return portfolio produced an annualized 12.9 percent, exceeding the passive benchmark of the OneYear Constant Maturity Treasury plus 6 percent by 2.4 percent per year and besting its active benchmark of hedge fund manager returns by 1.2 percent per year. For the ten-year period, absolute return results exhibited essentially no correlation to traditional marketable securities. For the decade ending June 30, 2006, the domestic equity portfolio returned an annualized 14.2 percent, outperforming the Wilshire 5000 by 5.7 percent per year and the Russell Median Manager return by 5.2 percent per year. Yale’s active managers have added value to benchmark returns primarily through stock selection. Yale’s internally managed fixed income portfolio earned an annualized 6.6 percent over the past decade, exceeding the Lehman Brothers Treasury Index by 0.5 percent per year and the Russell Median Manager return by 0.2 percent per year. By making astute security selection decisions and accepting illiquidity, the Endowment benefited from excess returns without incurring material credit or option risk.

Yale’s Performance Exceeds Peer Results 1996 to 2006, 1996 = $1,000 $6,000

$5,000

$4,000

$3,000

$2,000

Endowment Mean of Broad Universe of Colleges and Universities Inflation 18

The foreign equity portfolio generated an annual return of 14.5 percent over the ten-year period, outperforming its composite benchmark by 6.4 percent per year and the Russell Median Manager return by 4.7 percent per year. The portfolio’s excess return is due to e≠ective security selection and country allocation by active managers. Results from Yale’s non-marketable assets demonstrate the value of superior active management. Private equity earned 34.4 percent annually over the last ten years, outperforming the passive benchmark of University inflation plus 10 percent by 20.2 percent per year and the return of a pool of private equity managers compiled by Cambridge Associates by 14.1 percent per year. Since inception in 1973, the private equity program has earned an astounding 30.6 percent per annum. Real assets generated a 20.5 percent annualized return over the ten-year period, outperforming the passive benchmark of University inflation plus 6.0 percent by 10.4 percent per year and an active benchmark of real assets manager returns by 6.5 percent per year. Yale’s outperformance is due to the successful exploitation of market ine∞ciencies and timely pursuit of contrarian investment strategies.

Yale Asset Class Results Trounce Benchmarks 1996—2006

40%

35%

30%

25%

20%

15%

10%

5%

0 Absolute Return Domestic Equity Fixed Income Foreign Equity Private Equity Real Assets Yale Return Active Benchmark Passive Benchmark

Active Benchmarks Passive Benchmarks Absolute Return: CSFB Composite Absolute Return: 1-year Constant Maturity Treasury + 6% Domestic Equity: Frank Russell Median Manager, U.S. Equity Domestic Equity: Wilshire 5000 Fixed Income: Frank Russell Median Manager, Fixed Income Fixed Income: Lehman Brothers Treasury Index Foreign Equity: Frank Russell Median Manager Composite, Foreign Equity: 50% MSCI EAFE Index, 50% MSCI EM Index Foreign Equity Private Equity: University Inflation + 10% Private Equity: Cambridge Associates Composite Real Assets: University Inflation + 6% Real Assets: NCREIF and Cambridge Associates Composite 19

Management and Since 1975, the Yale Corporation Investment Committee has been responOversight sible for oversight of the Endowment, incorporating senior-level investment experience into portfolio policy formulation. The Investment 6 Committee consists of at least three Fellows of the Corporation and other persons who have particular investment expertise. The Committee meets quarterly, at which time members review asset allocation policies, Endowment performance, and strategies proposed by Investments O∞ce sta≠. The Committee approves guidelines for investment of the Endowment portfolio, specifying investment objectives, spending policy and approaches for the investment of each asset category. Twelve individuals currently sit on the Committee.

Investment Committee Charles D. Ellis ’59, Chairman Henry F. McCance ’64 Former Managing Partner Chairman Greenwich Associates Greylock Management

G. Leonard Baker ’64 Jane L. Mendillo ’80, ’84 MBA Managing Director Chief Investment O∞cer Sutter Hill Ventures Wellesley College

Joshua Bekenstein ’80 William I. Miller ’78 Managing Director Chairman Bain Capital Irwin Financial Corporation

Shauna King Theodore P. Shen ’66 Vice President Finance & Administration Former Chairman Yale University DLJ Capital Markets

Douglas A. Warner, III ’68 James Leitner ’75 Former Chairman of the Board President J.P. Morgan Chase & Co. Falcon Investment Management Richard C. Levin ’74 Fareed Zakaria ’86 Ph.D. President Editor Yale University Newsweek International

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The Investments O∞ce manages the Endowment and other University financial assets, and defines and implements the University’s borrowing strategies. Headed by the Chief Investment O∞cer, the O∞ce currently consists of twenty professionals.

David F. Swensen ’80 Ph.D. Anne Martin Chief Investment O∞cer Associate Director

Dean J. Takahashi ’80, ’83 MPPM David B. Slifka ’01 Senior Director Senior Associate Alexander C. Banker Celeste P. Benson Director Senior Portfolio Manager

Alan S. Forman Shuba V. Raghavan Director Senior Research Associate

Timothy R. Sullivan ’86 Carrie A. Abildgaard Director Senior Financial Analyst

Deborah S. Chung Daniel G. Kilpatrick ’03 Associate General Counsel Senior Financial Analyst

Kenneth R. Miller ’71 R. Alexander Hetherington ’06 Associate General Counsel Financial Analyst

Peter H. Ammon ’05 MBA, ’05 MA Dennis Hong ’05 Associate Director Financial Analyst

Michael E. Finnerty Nicholas T. Shalek ’05 Associate Director Financial Analyst Randy Kim ’98, ’04 MBA Xiaoning Wu ’04 Associate Director Financial Analyst

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Yale Law School and the Endowment

The world-renowned Yale Law School traces its origins to the modest o∞ces of a practicing New Haven attorney, Seth Yale Law School recognizes as its founders three New Haven attorneys and teachers, whose law classes were o≠ered by Yale College in the early nineteenth century: Seth Staples (B.A. 1797), center, whose name Staples (B.A. 1797). Staples, who went on was symbolized in the School’s coat-of-arms by the silver staples; David Daggett (B.A. 1783), left, whose to win fame as a lawyer in the historic family name was sometimes spelled “Doggett,” as the dog in the shield indicates; and Samuel Hitchcock Amistad case of 1839, set up a law practice (B.A. 1809), whose family heraldic motif was a crocodile. The Law School arms were designed by Theodore in the early years of the nineteenth century Sizer, professor of the History of Art at Yale from 1927 to 1957. and began training students in the law. When Staples moved to New York in the Connecticut, and William Storrs, a long- The Ford Fund supports “a program of 1820s, the small New Haven firm passed to time law professor who was chief justice of teaching and research on the interaction of his partner, Samuel Hitchcock (B.A. 1809), the state of Connecticut. At the same time, law and public policy” involving distinwho continued the apprenticeship pro- the expanding scope of the School was guished visiting faculty, research fellows, gram. Judge David Daggett (B.A. 1783), a reflected in the Morgan Fund, created in teaching materials, seminars, colloquia, former U.S. senator, joined Hitchcock and 1887 by Junius S. and J. Pierpont Morgan and publications. began lecturing in Yale College on public (LL.D. 1908), scions of the J. P. Morgan In addition to President Taft, fifteen law and government. In 1843, the first family, to establish the Edward J. Phelps Supreme Court justices have been a∞liated Yale law degree was granted. Staples, Professorship. Phelps, a co-founder of the with the Law School. Justice William Hitchcock, and Daggett are considered the American Bar Association and its president Douglas (1898-1980) was commemorated founders of the School, which honors the from 1880 to 1881, taught at Yale Law by the William O. Douglas Clinical three by incorporating visual references to School and served as ambassador to Great Professorship of Law (1989), through a their names in its coat-of-arms. Britain, comptroller of the U.S. Treasury, gift in memory of Gordon Bradford Judge Daggett earned the distinction of and senior counsel for the United States in Tweedy (B.A. 1929, LL.B. 1932). Douglas being the first incumbent of an endowed the Bering Sea controversy. The most joined the Law School faculty in 1928 and chair in law at Yale upon his appointment recent incumbent of the Phelps chair was in 1833 as the Chancellor Kent Professor Anthony T. Kronman, a former dean of of Law. The professorship was named in the School. honor of James Kent (b.a. 1781), who The national import of the Yale Law became the first law professor at Columbia School is reflected in part by the three U.S. in 1793 and later rose to the o∞ces of chief presidents who are associated with the justice and chancellor of the state of New School—William H. Taft, Gerald R. Ford, York. Among Judge Daggett’s successors as and William J. Clinton. Taft served on the Kent Professor is former U.S. president and Law School faculty from 1913 to 1921, Supreme Court chief justice William H. between his term as the twenty-seventh Taft (B.A. 1878). The fund continues to U.S. president and his appointment as support a faculty chair, held today by chief justice of the Supreme Court. Professor Robert W. Gordon, a specialist President Taft was commemorated in 1941 in contracts, American legal history, evi- with the creation of the Taft Law Library dence, the legal profession, and law and Endowment Fund, the gift of a group of globalization. Yale Law School graduates led by John A. During the late nineteenth century, Hoober (LL.B. 1891), a man whose genthe Law School, like the rest of Yale, pro- erosity resulted in the creation of thirtygressed from an institution of great regional eight separate endowed funds at Yale. William H. Taft (B.A. 1878) taught at the Law influence to one with a national impact. In 1980 a group of classmates instituted School from 1913 to 1921 after serving as the twentyCertainly, endowed funds continued to rec- the Gerald R. Ford Fund to honor the seventh president of the United States and before his appointment as chief justice of the U.S. Supreme ognize home state figures such as James E. thirty-eighth U.S. president, who received Court. A total of fifteen Supreme Court justices have English, a U.S. senator and governor of his LL.B. from Yale Law School in 1941. been a∞liated with the School.

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and a member of its faculty from 1952 to o≠er of a U.S. Supreme Court nomination 1956, had a distinguished career in govern- in 1854, and later urged Je≠erson Davis to ment that included service as the 65th free the slaves to help sta≠ the Confederate attorney general of the United States and army. The donor who endowed this library as under secretary of state. From 1969 to fund in Benjamin’s name chose to identify 1986 he worked for IBM . The Katzenbach himself only as “a New York lawyer.” chair has been held by faculty members A chair at the Law School is named for Burke Marshall, Paul Kahn, and, since practicing lawyer David Boies, chairman of 1999, Reva Siegel, who writes and teaches the firm Boies, Schiller and Flexner, who about constitutional law, antidiscrimina- received his LL.B. magna cum laude from tion law, legal history, and inequality from Yale in 1966 and served as chief counsel diverse disciplinary perspectives. and sta≠ director of the U.S. Senate Some endowments honor less well Antitrust Subcommittee in 1978 and of the known political figures. Judah P. Benjamin U.S. Senate Judiciary Committee in 1979. (1811-84), born to English parents in the Winner of prominent awards and a British West Indies and raised in the respected author, Boies is well known as American South, attended Yale as a teen- counsel to the Federal Deposit Insurance ager from 1825 to 1828, but did not gradu- Corporation in litigation to recover losses William O. Douglas, a member of the Law School ate. He practiced law in New Orleans, for failed savings and loan associations in faculty from 1928 to 1934, went on to head the before winning election to the U.S. Senate the early 1990s, as special trial counsel for Securities and Exchange Commission and was in 1852 and 1858, reportedly the second the U.S. Department of Justice in its appointed to the Supreme Court in 1939. He is seen here during his career as a student debater. man of Jewish descent to serve in that antitrust suit against Microsoft in the late body. In February 1861 he resigned his 1990s, and as the lead counsel for former left in 1934 for the nation’s capital, where Senate seat to join the cabinet of the Vice President Al Gore in the aftermath of he served on and later chaired the U.S. Confederate South, holding successive the 2000 presidential election. The Boies Securities and Exchange Commission. posts as attorney general, secretary of war, chair is to be held by a faculty member Appointed by President Franklin D. and secretary of state. After the defeat of who exemplifies the “intelligence, imaginaRoosevelt to the Supreme Court in 1939, the Confederacy in 1865, Benjamin donned tion, and judgment that have been the hallhe remained an associate justice until 1975, a disguise to escape by way of Florida, then mark of David Boies’s exceptional career in a record tenure. Stephen Wizner, the cur- made his way to the island of Bimini and the law.” The first incumbent of the chair is rent Douglas Clinical Professor, has taught finally to England. He practiced law in that Professor Robert C. Post, a specialist in and supervised students in the Law country for the rest of his professional life, constitutional law, the First Amendment, School’s clinical program, and has taught before spending his retirement in France. legal history, and a∞rmative action. non-clinical courses in trial practice, evi- Benjamin won respect for his legal writ- Some noteworthy funds that honor hisdence, and ethics. ings, declined President Franklin Pierce’s torical figures include: the Benjamin N. Potter Stewart (B.A. 1937, LL.B. 1941) served on the U.S. Supreme Court from 1958 to 1981, under Chief Justices Earl Warren and Warren Burger. A moderate on the Court, Stewart refused President Richard Nixon’s o≠er of nomination to chief justice, choosing to continue on the bench as an associate justice for another twelve years. His papers reside in the Yale University Library, where they are sealed until the departure from the Court of the last justice who served with him. In 1986, his family, friends, and former law clerks created a professorship in his memory, the Potter Stewart Professorship of Constitutional Law, through which the holder of the chair o≠ers courses both at the Law School and in Yale College. The incumbent since 1992 has been Paul Gewirtz, who also directs the Law School’s China Law Center. Numerous Law School graduates have served in Cabinet positions or in the U.S. Congress. Created in 1986 by contributions from IBM , the Nicholas de B. Katzenbach (LL.B. 1947) Professorship supports a scholar engaged “in Public Law or other The Law School Class of 1883 gathered for its twenty-fifth reunion, along with some faculty members branch of advanced legal scholarship.” (seated in middle row). One classmate came from Chile for the occasion. The Law School in those days was Katzenbach, a graduate of the Law School located in Hendrie Hall.

23

Cardozo Prize (1947), the gift of an anony- port of the late Congressman Lowenstein mous donor in honor of Justice Cardozo, (ll.b. 1954), is now funded by an endowwho served on the U.S. Supreme Court ment created in 1996 by the Lowenstein from 1932 to 1938; the W. Averell Trust and a bequest from Kenneth B. Harriman Fund (1963), established by a Schwartz (B.A. 1977, J.D. 1981). The gift from W. Averell Harriman (B.A. 1913), Lowenstein Project sponsors a Law School a diplomat who held positions as ambassa- course called the Lowenstein International dor to England and other countries, under Human Rights Clinic, as well as confersecretary of state, assistant secretary of ences, guest speakers, student research, and state, and governor of New York; and the advocacy projects in locations as diverse as Henry R. Luce Professorship of Jurispru- Bosnia, Burma, Cambodia, Central Asia, dence (1955), a gift from Henry R. Luce Darfur in Sudan, El Salvador, Eritrea, and (B.A. 1920), founder of Time, Life, and the United States. other publications. Additional funding for the Lowenstein Endowment for student support plays a Clinic comes from the Orville H. Schell, Jr. critical role in allowing Yale Law School to Center for International Human Rights, attract the best and the brightest, regard- founded at the Law School in 1989 to less of ability to pay. The Lillian Goldman honor the distinguished lawyer (b.a. 1930) Perpetual Scholarship Fund (1994), estab- who was vice chair of Helsinki Watch and lished by Lillian Goldman of New York chairman of Americas Watch. The Schell City, a distinguished businesswoman, phi- Center sponsors a range of human rights lanthropist, and friend of Yale Law School, activities including symposia, the Yale provides aid for students in financial need Human Rights and Development Law who have a demonstrated interest in Journal, as well as coordination and com- The Allard K. Lowenstein International Human women’s rights, with a preference for munication e≠orts with the international Rights Law Project and a related course inspired a group of Yale Law students to sue the government women students. The John V. Lindsay human rights community. The Vivien Weion behalf of Haitian refugees in 1992. Graduate Public Service Fellowship (2000) is sup- Ying U Fund for Human Rights (1998) Brandt Goldstein’s book on the subject appeared in ported by gifts from classmates, friends, provides endowed support for the Schell 2005. and former colleagues of John V. Lindsay Center, including funding for an annual (B.A. 1944, LL.B. 1948), congressman from fellowship to allow visiting scholars or became interested in the plight of the 1959 to 1965 and mayor of New York City practitioners to spend a year at the Law Haitians, who were detained at Guantanfrom 1965 to 1973. The fund supports sum- School as Schell Fellows conducting amo Bay in Cuba and faced forced repatriamer fellowship grants to students taking research and participating in the life of the tion to the repressive regime that had positions in government, public adminis- School’s human rights community. seized power in September 1991. A recent tration, and public interest law in New Even before these funds were estab- book by Brandt Goldstein (j.d. 1992), York City. lished, Yale Law School’s Lowenstein Storming the Court, portrays the e≠orts of A new chapter in the history of Yale Clinic and other organizations had shown Professor Koh and the students, who Law School has been its focus on human a strong interest in human rights, as evi- brought a suit to force the recognition of rights issues, often in an international denced by a lawsuit on behalf of Haitian political rights of the refugees. When a context. The Allard K. Lowenstein Interna- refugees in 1992. Students in the Lowen- New York court suspended the deportational Human Rights Law Project, created stein Clinic, along with Professor Harold tions and allowed the Yale team access to by students of the School in 1981 with sup- Koh, now the dean of the Law School, the refugees at Guantanamo, the government filed appeals that went to the Supreme Court. Ultimately the remaining refugees were freed after the Haitian Centers Council v. Sale Supreme Court decision in June 1993, although the government was allowed to return future refugees to Haiti without hearing. Another Supreme Court decision, in 2004, which recognized that prisoners at Guantanamo Bay had legal rights, was seen as a subsequent vindication of the arguments brought by the Yale group. Endowed funds honor some of the legal field’s towering figures and support the activities of one of the world’s finest law schools. In particular, Yale Law School endowed funds enhance the School’s ability to attract and retain students and faculty of unparalleled quality, simultaneously honorMrs. Lillian Goldman, a philanthropist who supported scholarships as well as the renovation of the Lillian Goldman Law Library in Memory of Sol Goldman, is shown at the rededication of the library in 2000 with ing the past and providing hope for the then Dean Anthony T. Kronman and former Dean Guido Calabresi. future.

24

Sources

Much of the material in this publication is drawn from memoranda produced by the Investments O∞ce for the Yale Corporation Investment Committee. Other material comes from Yale’s financial records, Reports of the Treasurer, and Reports of the President.

Pages 6-12 Educational institution asset allocations and returns from Cambridge Associates.

Page 18 The Endowment’s annual return for the ten years ending June 30, 2006 ranks in the top one percent of institutional funds as measured by the SEI Large Plan Universe.

Harkness gate in Branford College.

Photo Credits

Front cover Steve Dunwell Photography, Inc., Boston

Back cover Michael Marsland, O∞ce of Public Affairs

Page 11 Photo: Elizabeth Felicella. Courtesy of Yale University Art Gallery.

Page 13 Bat fossil: ©Yale Peabody Museum.

Pages 16, top, and pages 17, 22-23 Sterling Memorial Library Manuscripts and Archives.

Page 24, above Storming the Court: How a Band of Yale Law Students Sued the President—and Won, by Brandt Goldstein (New York: Scribner: 2005). Book cover used courtesy of the publisher.

Page 24, below Photo of Lillian Goldman, A. Kronman,

G