Endowments are back, just. The annual survey of their returns by NACUBO-Commonfund showed an average return of 11.9 per cent for the 850 college and university endowments in the study for the year to June 2010.
But Yale, the envy of other endowments and most pension funds for many years, was near the bottom of the league table as it struggles to recover ground lost in 2008 and 2009. The average endowment lost 18.7 per cent in the year to June 2009. Yale had a below-average return of 8.9 per cent in the latest study, the lowest of the eight Ivy League institutions.
The focus is always on Yale because its famous chief investment officer, David Swensen, is largely credited with creating the alternatives investment model for institutional investors. Yale registered investment returns averaging 20 per cent a year between 2004 and 2007.
Most endowments have remained committed to alternatives throughout the global financial crisis, still averaging just over half in total asset allocation, and are underweight broad market US equities. The S&P 500 was one of the best performing asset classes during the study period – up 15.6 per cent.
Endowments have also tended to be overweight real estate which was negative 15.8 per cent during the period, based on index returns.
The Commonfund president and chief executive, Verne Sedlacek, estimated that most endowments were probably still about 25 per cent below where they were in 2007.
The study described the outperformance of smaller institutions versus the larger ones – the two biggest are Harvard and Yale – as “anomalous”.
John Walda, NACUBO president, said that over the longer term, larger institutions with their greater resources generally outperformed smaller ones and this trend started to return in 2010.
When the crisis started to unfold in 2007, many of the larger endowments were caught with illiquid funds because of their higher exposure to alternatives. They were forced to sell shares and bonds to cover the demands on their funds from the universities.
The endowments are perpetual funds, so short-term performance should not be a major concern, but they are used to attract students in the competitive US tertiary education system through their funding of research programs and university services.
