YALE endowment goes CRYPTO
Yale’s David Swensen, the most influential endowment manager (with $29.4 billion AUM) just jumped into crypto with bets on two Silicon Valley funds.
Yale is home of the second largest university endowment in the country and generally regarded as one of the best. They recently invested in the funds that are run by Andreessen Horowitz and Paradigm (a new $400 million cryptocurrency fund), which was started by Coinbase co-founder Fred Ehrsamand former Sequoia Capital partner Matt Huang.
David Swensen is known as Yale’s ‘Warren Buffett’ because of his investing success with the university’s endowment, who’s portfolio is closely watched, and many times mirrored, by other endowments, foundations and pensions.
The $30 billion endowment fund has 60% of their assets allocated to alternative investments in 2019, which now includes cryptocurrencies and blockchain startups. This move is an important inflection point for the whole industry. The university endowment’s participation in crypto will lend credibility, while providing the catalyst needed to get more institutions in the game. A lot of those institutions may now start thinking: “If it is good enough for Yale, then it is good enough for us.”
A big challenge for institutional and venture investors is that crypto bets like tokens and digital currencies are very different from taking equity stakes in start-ups and buying stocks, making conservative risk-tolerant money managers to adapt to a whole new set of issues.
Institutional investors are a very different animal than family offices or high-net worth individuals. The large organizations tend to require more robust governance rights and terms, conduct deeper levels of diligence, and possess significantly larger funds.
Here are a few implications we might see in the nearest future:
- Other endowment funds and institutional investors start using Bitcoin and crypto related products as a diversification instrument which will bring more alpha (excess returns), decrease correlation to markets overall, and increase Sharpe ratio (risk adjusted returns);
- Large consultants that advise major institutional investors will start approving crypto funds for investment, bringing more capital into the domain;
- Public institutional investors (which are lot more regulated than private) will follow the “crowd” and start investing in Bitcoin, crypto related products and funds;
- Sovereign wealth funds (SWFs) will start including crypto as part of their Alternative Assets’ strategy so that their portfolios are better able to weather external shocks.
As each new institution participates, the industry will experience significant inflows and mature at an accelerating rate!
For more information on digital assets, feel free to reach out to WhitePark Capital at contact@whitepark.capital.
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