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REGIONAL INVESTMENT


“Asian venture capital presents explosive potential. India and China, in particular, represent areas of great opportunity”


18.1%


THE PROPORTION THE AVERAGE UNIVERSITY ENDOWMENT ALLOCATES TO FOREIGN EQUITY.


understanding of, and more unique insights into, the world’s higher-growth markets.’ ƒ Harvard’s asset allocation to Emerging Markets has doubled since 2005 from five per cent to 11 per cent in 2010. Allocation to foreign equities (i.e. developed foreign equity markets) remained relatively flat in the same period from 10 per cent to 11 per cent. ƒ Yale’s total target foreign equity allocation is nine per cent. This consists of four per cent to foreign developed equities, 2.5 per cent to emerging market equities, and 2.5 per cent to “opportunistic foreign positions, with the expectation that holdings will be concentrated in markets such as China and India”. ƒ In comparison, the average university endowment allocates 18.1 per cent to foreign equity. ƒ Yale has a preference to invest with regionally focused managers that perform bottom-up, fundamental analysis, even though such a policy may cause Yale’s country, sector, and security allocations to diverge significantly from those of broad global indices. ƒ Yale notes that, “country allocations heavily


influence overall performance in foreign equities. Unfortunately, forecasting country returns proves difficult and generally provides an unreliable source of value added... (so Yale’s external investment managers)... predominantly focus on generating outperformance through bottom-up security-specific investments.” ƒ In general, Yale’s managers do not hedge currencies, since a modest amount of exchange rate exposure actually improves overall portfolio diversification. However, managers will occasionally incorporate insights on exchange rates into security selection decisions. ƒ Increasingly, Yale has invested in private equity abroad. It notes that, “Asian venture capital presents explosive potential, albeit with the increased risks of investing in developing countries with less well- established laws and markets. India and China, in particular, represent areas of great opportunity.” ƒ Yale’s asset allocation to private equity is more than 30 per cent, making it its largest asset class. The recent financial crisis has dampened many investors’ appetites for illiquid asset exposure, so Yale sees a better future for private equity, and subsequently Asian private equity. ƒ The hallmark of Yale’s successful private equity program has been long-term relationships with the very best venture capital and leveraged buyout managers. Like these leading university endowments, IFOA’s operational strategy is to also build a network of relationships to enable emerging family offices to more quickly and effectively connect to well-regarded private equity and other investment managers.


David Chin Managing Director, Basis Point Consulting FAMILY OFFICE: ASIA TOMORROW 13


FOCUS ON AISA-PACIFIC


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