Ivy League schools are famous for their massive endowments which have multi-billion dollar portfolios. These funds have the dual goals of growing their principal and generating income. A certain percentage of each endowment's portfolio is invested in illiquid assets such as leveraged buy-outs, real estate, and natural resources - to include farm and timberland. In 2015, Yale's Endowment portfolio included 6.7% in natural resources, though its long term allocation target in that class is 8.5%.
Long-Term Equity in Natural Resources
Rather than focusing on bonds and fixed-income securities, endowments rely on long-term, equity type investments to boost their returns. These illiquid portions of their portfolios are designed to protect against global inflation, provide cash flow, and provide an opportunity to benefit from market inefficiencies.
“The heavy allocation to nontraditional asset classes stems from their return potential and diversifying power...Alternative assets, by their very nature, tend to be less efficiently priced than traditional marketable securities, providing an opportunity to exploit market inefficiencies through active management.”
The well-compensated portfolio managers for these endowments make strategic decisions that enable them to be responsible stewards for the schools' alumni and donors investments. The top five university endowments have targeted natural resources in their portfolios that average approximately 10%.
Top 5 University Endowments - Natural Resource Asset Class Allocation Percentage
Investors with a long term - even multi-generational - approach to their portfolios can emulate the asset allocations of university endowments by putting a portion of their wealth in real estate, timber, farmland, and other natural resources. Crowdfunding has made it easier and cheaper for average investors to diversify their portfolios with natural resources.