The Yale Model died somewhere between 2018 and 2022. Not dramatically, but quietly. The arbitrage is gone, but the fees remain eternal.
My sense is that the so-called "Yale Model" expired years ago in terms of its utility. Your consultants know it too, and we all know how brilliant it was and how, like many things in markets, it was overoptimized. It went too far. Now the chickens are coming home to roost.
The Yale Model died somewhere between 2018 and 2022. Not dramatically, but quietly. Here's what killed it: The model's genius was timing and qualitative analysis. Swensen's true edge wasn't insight; it was being early to private markets when they were actually private, actually inefficient, and accessible. It was assessing the source of the numbers and the qualitative elements that suggest it will endure.
Today? Every pension fund in Peoria has a private equity allocation. Every family office has venture exposure. In my early days, I knew of Series A, B, C. The letters of the alphabet continue to grow. The arbitrage is gone, but the fees remain eternal. The aggregate returns of endowments have underperformed a simple 70/30 portfolio for the past decade. Not by a little—by 200+ basis points annually. After fees. After all that complexity. After all those committee meetings that you've sat through, probably knowing this truth but unable to stop the institution's inertia.