Though most university endowments showed more growth in the last fiscal year than they had in nearly a decade, Yale’s investment return was well above even that higher national average, according to a national study of 741 universities released Monday.
Universities participating in the 2004 National Association of College and University Business Officers Endowment Study reported an average 15.1 percent rate of return for the fiscal year that ended June 30, up from 3 percent in the previous year. The Yale Investment Office reported in October that the University netted a 19.7 percent return on its endowment over the same period, and a comparative investment index, Standard & Poor’s 500, earned a 19.1 percent return during that time.
Yale’s average base investment return of 16 percent ranked the University first among the nation’s private universities over the 10-year period ending June 30, 2003, according to a 2003 study conducted by the Harvard Management Corporation. Harvard’s average return over that period ranked third, at 14.7 percent, the study said.
University spokesman Tom Conroy credited the Investment Office and Chief Investment Officer David Swensen for Yale’s performance.
“What it says is that the faculty and students and staff of Yale owe a debt of thanks to David Swensen and his colleagues for their superb management of the endowment,” Conroy said. “Because their work is so outstanding in comparison to their peers on average, they provide tremendous resources to support Yale’s mission, and they make a lot of additional support of research, teaching and other aspects of Yale possible.”
The University’s annual rate of return was also greater than the average rate for all universities with endowments over $1 billion, which stood at 17.2 percent last year.
According to the NACUBO report, the overall market value of Yale’s endowment in the 2003-2004 fiscal year was about $12.7 billion, second only to Harvard University, which has an endowment of about $22.1 billion.
Provost Andrew Hamilton also lauded the returns earned by Swensen and his team, but he said a high ranking in the NACUBO study was not a motivation for the administration.
“The issue is not competition with other universities’ endowment returns, but rather how this critical resource can best be used to support important programs and initiatives at Yale, from the new buildings we see around us to expansions in student aid,” Hamilton said.
In order to facilitate this support, University administrators relaxed the endowment spending cap that limits the amount of money drawn from the endowment for the new fiscal year’s budget. The Yale Corporation approved the spending cap’s increase from 5 percent to 5.25 percent after receiving initial endowment returns figures. The University expects spending from the endowment to total about $562 million this year, an 11 percent increase from the previous fiscal year, Yale President Richard Levin said in October. The increase marked the first time in nine years that the targeted rate of endowment spending was changed. It also makes Yale an exception. Many universities have chosen to spend less from their endowments in the future, the NACUBO report said.
Hamilton said the spending cap increase was necessary in light of Yale’s ambitious renovation and development projects.
“The recent change in the spending rule was a prudent decision taken by the Yale Corporation to better translate the strengthened endowment into improvements on campus,” Hamilton said.
At $12.7 billion, the endowment makes up approximately 32 percent of the University’s revenue, more than doubling the contribution to the operating budget it provided a decade ago when the endowment had a total value of $3.6 billion.
The University of Texas system ranked third behind Harvard and Yale on the NACUBO study’s list, with an endowment of around $10.3 billion, with Princeton and Stanford Universities following at around $9.9 billion.