Sep 25, 2023 · 56m · capital-allocators
Alan Forman – Yale Endowment Real Estate (EP.340)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, Ted Seides interviews Alan Forman, former Director of Real Estate at the Yale Investments Office, about pioneering the private equity real estate model alongside David Swensen. Forman shares foundational insights on manager due diligence, partnership alignment, endowment portfolio construction, and his post-Yale advisory venture, Blue Orchard Capital.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 24.7% of the talking time here. How this is scored →
Ted as informed peer 4.2 Guest teaching 4.5 Guest disagreement 0.1 Ted pushing back 0.1
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 34:20 Forman challenges conventional beta assumptions
Forman firmly reframes Ted's question about passive exposure by pointing out that the pre-GFC paradigm of treating all real estate as generic beta completely broke down when office collapsed and industrial surged.
Hardest push from Ted ▶ 47:50 Ted presses on IPO exits vs Swensen's philosophyTed challenges Forman by bringing up David Swensen's well-known philosophical dislike for outside public ownership of asset managers and asks how they reconciled that during GP IPOs.
Biggest teaching moment ▶ 11:20 Forman explains diligence differences in real estateForman explains to Ted why standard LP diligence reference calls used in venture capital are unhelpful in real estate due to the zero-sum, non-collaborative nature of property acquisitions.
Ted holds their own ▶ 47:50 Ted demonstrates deep insider knowledge of Yale's playbookTed displays his insider expertise on the endowment model by directly probing the governance tension between GP public offerings and Yale's structural preferences.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Ted's iPhone Upgrade Anecdote and Podcast Promotion | 1 | 2 | 0 | 0 | Ted opens with a personal anecdote about upgrading his iPhone and promotes the podcast before asking Forman how he got his start at the Yale Endowment in 1990. Forman gives background context on joining David Swensen when endowment management was just beginning. | |
| Culture, Inclusion, and Transparency Inside the Yale Office | 4 | 5 | 1 | 0 | Ted asks about office dynamics and manager meeting structures. Forman educates Ted on how Yale included junior staff in sensitive meetings and explains why reference check calls are less informative in real estate compared to venture capital. | |
| Defining Characteristics of Top Real Estate Investors | 4 | 5 | 0 | 0 | Ted asks about identifying investor characteristics, post-9/11 hotel opportunities, and training junior analysts to decline pitches. Forman provides nuanced lessons on giving direct feedback and finding unproven talent before placement agents existed. | |
| Decision-Making, Investment Memos, and Swensen's Writing Masterclass | 5 | 4 | 0 | 0 | Ted leverages his own shared Yale background to ask how investment memos and committee dynamics evolved after Swensen's books were published. Forman shares how Swensen taught him concise writing and emphasizes that passion for investing must take precedence over high-minded mission talk. | |
| Cultivating Long-Term Manager Relationships as an Edge | 4 | 5 | 0 | 0 | Ted prompts Forman on how he maintained an informational edge as the industry caught up, and transitions into Yale's direct ownership history. Forman describes the early window required to become a GP's primary phone call and details the 717 Fifth Avenue acquisition and redevelopment. | |
| The Apple Store Leasing Decision with Steve Jobs | 4 | 5 | 0 | 0 | Forman shares the story of turning down Steve Jobs's request to lease retail space for the first Apple Store at 717 Fifth Avenue because they could not envision a computer store on Fifth Avenue. He then describes how academic economists like Stephen Ross advised Yale to ignore academic models and simply back good people. | |
| Sponsor: Ridgeline | 3 | 4 | 0 | 0 | Following the mid-roll ad break, Ted asks about partnership structuring nuances. Forman details their focus on co-investments, non-profit-center fee structures, and managing portfolio growth while the endowment expanded rapidly. | |
| Shift in Real Estate Dynamics: Alpha vs. Sector Beta | 5 | 6 | 1 | 1 | Ted probes whether Yale would take passive sector beta if the right partner was not available. Forman explains that historical assumptions that all property types deliver beta were upended post-GFC when industrial soared and office cratered, acknowledging it was a difficult structural shift to navigate. | |
| Balancing Emerging Managers and Established Firms | 5 | 4 | 0 | 0 | Ted asks how Forman weighed emerging managers versus mature incumbents and generalists versus specialist firms. Forman explains why Yale tilted 80-90% toward specialist platforms and avoided multi-strategy shops that drifted away from their core competency. | |
| Navigating International Real Estate and Equity-Only Capital Structure | 5 | 5 | 0 | 0 | Ted asks about international real estate allocations and capital stack selection. Forman explains why Yale completely avoided emerging markets real estate to avoid wasting resources on speculative development and explains why they remained strictly equity investors. | |
| Advising General Partners on Multi-Faceted Business Building | 5 | 5 | 0 | 0 | Ted asks what recurring organizational advice Forman provided to growing firms. Forman details the friction that arises when dealmakers fail to build institutional management and explains how his role evolved into being a peer advisor to GPs. | |
| Long-Term Partnerships, Going Public Exits, and Slump Turnarounds | 6 | 5 | 0 | 1 | Ted cites Swensen's aversion to outside ownership to question how Yale handled GP public exits. Forman explains how IPOs naturally concluded private partnerships and illustrates Swensen's contrarian willingness to extend investment periods during manager slumps. | |
| Stepping Down from Yale and Founding Blue Orchard Capital | 4 | 3 | 0 | 0 | Ted asks Forman about retiring from Yale, launching Blue Orchard Capital, and conducts the concluding lightning round. Forman discusses his transition to advising GPs and reflects on career lessons learned from David Swensen and Ellen Shuman. |
Statements from this episode (30)
Forman: Yale directly owned real estate assets before pioneering private equity model
“Back in the day, Yale was a direct real estate owner of assets. When I joined, I was put in charge of managing all those assets, and David and Ellen and Donna were pursuing this New model called private equity real estate”
Yale Investments Office included junior staff in all high-level meetings
“Some of the dynamics in the office, young people were included in everything, and there was no segregation of, oh, this is a high-level meeting. So everyone got to see everything”
Reference calls are less useful for real estate diligence than venture capital
“We found that the due diligence calls, which is very common, underwriting venture firms, wasn't as helpful in the real estate business. It's a less collegial business. On a venture deal, two venture firms can be on the board of a company, and they're working t…”
Forman: Yale Did Lion's Share of Legal Work for Real Estate LP Groups
“And in most cases, Yale was doing the lion's share of the legal work on behalf of the investor group.”
Negotiating minor legal terms reveals a fund manager's true character
“When you're negotiating the small legal terms, you're getting a sense of what the partner is like, and how they think about things, what they care about, what they don't care about, how available they are, how hard are they working, how responsible.”
Forman returned every phone call because top early talent lacked marketing polish
“The one thing I always did, I took every call. My pride at the end of the day was I returned every phone call, usually before I went home that night. I always felt I really like this business, so I like talking to a lot of people, but I just felt like you neve…”
The best way to decline fund managers is citing unchangeable structural constraints
“One thing I learned from David was there are certain things that managers can't respond to in a way that would change the outcome, and if you could come up with examples where there's nothing they can do about what their structure is, then you have an easy way…”
Forman: Yale's committee usually approved David Swensen's investment recommendations
“What David recommended to the committee more often than not was approved. So, I mean, David was the big hurdle. That we had to get over internally.”
Forman: Committing investment ideas to writing exposes flaws and quality
“And when you put something in writing, it exposed the flaws or how good it was. You were forced to do that, even though you probably weren't learning a lot from the writing process, just the act of putting it on paper was really important.”
LPs have a limited window to become a new manager's primary advisor
“When we back at an early stage manager, there's a window where you need to be the person that they call when they have an issue. And that window doesn't stay open forever. And you need to take advantage of that window so that when they're 20 years later, you'r…”
Forman: Yale paid $14 million for 50% stake in 717 Fifth Avenue
“And believe it or not, we paid fourteen million dollars for a 50% interest in a Fifth Avenue asset, which is mind-boggling these days.”
Forman: Yale acquired full ownership of 717 Fifth Avenue for $60M total basis
“When they agreed to sell the deal for, I think, forty-seven million in the mid-nineties, Yale stepped up and matched the offer. So we're in the deal for sixty million bucks, and it was almost a 500,000 square foot asset.”
Forman: Yale probably made $100 million redeveloping 717 Fifth Avenue
“We ripped off the front of the building and expanded it, and Yale probably made a hundred million dollars on the redevelopment.”
Yale endowment rejected Steve Jobs' pitch for the first Apple Store
“They wanted to open up their first Apple store in our building, and we were very close to wrapping up a deal with someone else. We spoke to Steve Jobs, and he explained his vision for the business, which, to be honest, is exactly what turned out to be the case…”
David Swensen modeled Yale's real estate strategy on private equity and VC
“David Swenson was a first principles investor, and he looked at the real estate business in the eighties and said, this doesn't make any sense. And he thought that the fee-based nature of the business, there was no alignment of interest. There was lots of sepa…”
Yale economists advised the endowment to prioritize manager selection over theoretical portfolio modeling
“And it's funny, because we went to all these very impressive Yale professors and asked them, how do we create a portfolio? How do we Find the efficient frontier, all these economists like Ibbotson and Stephen Ross and people like that, and they just said, find…”
Forman: Yale structured real estate partnerships around GP co-invest and overhead-only fees
“Well, we're very focused on alignment of interests. So whether it's having a meaningful co-invest, whether it's fees that cover overhead, and hopefully are in a huge profit center, there's one pool of assets. So we're all in it together for better or for worse…”
Forman: Rapid endowment growth prevented Yale from reaching private asset targets
“So it probably would have been fully built out sooner had the endowment not grown as much, but it was growing so fast that we were always trying to project where we needed to be and we would never get there. And that was true in all private asset classes.”
Yale Endowment passed on real estate sectors without the right partner
“Historically, we took a pass on the sector. If we couldn't find the right group, we just did not pursue the sector. And industrial was a good example where even once the sector became much more interesting and institutional, it took us a while to find the righ…”
Forman: Post-GFC real estate flipped from alpha-driven to sector beta-driven
“I think one thing that's really interesting that's changed in the real estate business that you were getting the beta regardless of the property type. So focusing on alpha was all that mattered. Unfortunately post GFC that's completely flipped on its head. So …”
Yale's real estate portfolio allocated 80% to 90% to sector specialists
“I'd say the portfolio was probably 80 to 90% specialists, and we just thought being really good at one thing was the way to go, and a lot of the companies were vertically integrated, and they had an ability to add value and do it all themselves.”
Forman: Yale Moved Away From Real Estate Firms Adopting Multiple Strategies
“We didn't invest with a lot of groups that had these really broad platforms. There were some hedge funds that did stuff. There were definitely some real estate firms that tried to do multiple strategies. We tended to move away from them over time as they tried…”
Forman: Yale completely avoided emerging market real estate investments
“One of the smartest things we didn't do is we didn't do any emerging market real estate, and we actually didn't spend any time even looking at it.”
Forman: Yale real estate program invested exclusively in equity
“So essentially, Yale has always just been an equity investor. Unless it's an opportunistic thing within an equity structure, we tended to only invest in the equity, and we only wanted the inflation protection.”
Forman: Yale was slow to enter student housing and self-storage
“I'd say we were a little slow on some of these nichier sectors where these non-traditional real estate sectors like student housing and self-storage Part of that was the people in the business by definition almost didn't have a lot of experience, and there was…”
Forman: Multi-strategy real estate managers educate allocators on niche sectors
“And that's where I think having these relative multi-strategy shops is very helpful because they actually help educate us to understand, oh, there's these other sectors over here. They think it's relatively attractive. Maybe we can do that in a bigger way some…”
Forman: Real estate firm leaders are dealmakers, not organizational managers
“The guy who got to the top of a lot of these real estate firms is a deal guy. And he's not a organizational guy, and he's not an investment management guy in the same way that maybe in other asset classes.”
Yale underwrote zero terminal value on distressed 1990s California real estate deals
“Things were so bad in California back then that we underwrote no residual
To the assets in at least one deal.
It was not even a land residual.
We assume that these assets just went away at the end of the lease term because things were so bad.”
A fund manager going public marks the end of Yale's investment relationship
“Once one of our partners goes public, it's the beginning of the exit of the relationship.
It may not happen overnight.
We're usually a very large shareholder of the entity.
Sometimes we're on the board.
So exiting is slow, but there's no more opportunity to in…”
Yale's biggest mistake was giving too much leeway to manager strategy drift
“I think the biggest mistake I made at Yale over the years was managers that had some strategy drift in their portfolio, and because they had done very well in a different strategy, we gave them a little bit of too much of the benefit of the doubt, and I wish w…”