What If Norway’s Sovereign Fund Replicated the Yale Endowment Model

Posted on 01/17/2016

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Sovereign wealth funds are known for their long-term investment horizon and preference toward harvesting the illiquidity premium. Many wealth funds are engaged in co-investments and direct investments such as the Abu Dhabi Investment Authority (ADIA) and Singapore’s GIC Private Limited. However, some sovereign funds are restricted to a smaller universe of asset classes. What if Norway’s sovereign wealth fund were able to generate the returns of the Yale Investment Office? How big would the sovereign wealth fund be today?

Norway’s Government Pension Fund Global (GPFG) has major allocations to fixed income and equities and a sliver to overseas institutional real estate. The Yale endowment model is copied by a plethora of sovereign funds, endowments and pensions, focusing on a high allocation to illiquid investments. Who wins? Keep in mind, Yale manages around US$ 26 billion in assets versus Norway’s SWF US$ 880 billion plus. Finding enough high-quality illiquid opportunities may be impossible for the Norwegian asset giant.

Under the assumptions below, ceteris paribus, Norway’s wealth fund would have US$ 2.515 trillion on June 30, 2015 versus US$ 873 billion.

Calculation and Methodology

To keep things simple, SWFI will simply take Norway’s June 30th assets figure and multiply it with the annual return of Yale’s endowment. Yale’s fiscal year is June 30th. Once that number is calculated for the year, SWFI will add the annualized inflow amount in U.S. dollars. This rough shot calculation will start in 2009. SWFI conducted all calculations in U.S. dollar. This calculation is not factoring in organizational costs or annual withdrawals.

Keywords: Yale Investment Office, Norway Government Pension Fund Global.

• Abu Dhabi Investment Authority
• endowments
• Norway
• Norway Government Pension Fund Global
• Policy
• Private Equity
• Yale Investment Office