Endowments were among the first institutional investors in hedge funds, and they remain among the most committed and sophisticated.  According to data provider Preqin, endowments account for approximately 14 percent of institutional investor assets in hedge funds, the third largest category after funds of funds and public pension funds.  The Yale University Endowment in particular, under the stewardship of Chief Investment Officer David Swensen, has been a leader among endowments with respect to hedge fund investing.  Yale made its first investment in hedge funds in July 1990, starting with a 15 percent target allocation to what it calls “absolute return” strategies, and in the last 10 years has generated average annual returns of 11.4 percent from hedge funds.  Many endowments have followed Yale’s lead into hedge funds, such that the average endowment’s allocation to hedge funds is now 22.5 percent of total assets; Yale’s target hedge fund allocation currently is 15 percent, down from 21 percent in fiscal 2008, though its current actual allocation is 24.3 percent.  In light of Yale’s pioneering role in hedge fund investing, its 2009 Endowment Report merits special attention from hedge fund managers, other endowments and other institutional investors.  For hedge fund managers looking to hone their marketing “pitch” to endowments, the Report offers unique insight into the thinking of a leading endowment on a variety of relevant topics.  For other endowments and other institutional investors, the Report describes a variety of best practices and approaches based on long experience.  See “Are University Endowments Likely to Insource Investment Management Functions Currently Outsourced to Hedge Fund Managers?,” Hedge Fund Law Report, Vol. 2, No. 37 (Sep. 17, 2009).  Of particular note, the Report discusses the three-part framework used by Yale to understand and approach liquidity.  Following the frequent use of liquidity restriction measures during the credit crisis, liquidity has become a paramount concern among institutional investors.  But there’s more to liquidity than merely the right to get your money back.  The liquidity framework described in the Yale Report is subtle and, to a degree, counterintuitive; and it’s a framework of which hedge fund managers need to be aware when marketing to endowments.  To that end, this article describes that framework in detail and, more importantly, discusses 11 ways in which hedge fund managers may use an understanding of that framework to enhance the liquidity they offer to endowments.  This article also details other matters discussed in the Report that are relevant to hedge funds, including: sources of endowment funds; uses of endowment funds; asset allocation by Yale and other endowments; Yale’s investment goals generally; Yale’s investment goals specifically with respect to hedge fund allocations; Yale’s views with respect to investments in private funds affiliated with banks; its use of benchmarks for measuring the performance of absolute return strategies; and its focus on green investing and sustainable development.