MIT boasts record high in investment returns

Yale’s 22.9 percent return on its investments was the pace-setter among university endowments this year — but only until the Massachusetts Institute of Technology, which recently welcomed a former Eli official as its investment chief, released its own numbers on Oct. 12.

MIT earned a 23 percent return on its investments, though its endowment of $8.4 billion falls far short of Yale’s $18 billion. Industry experts say MIT’s success can be attributed to some strategies that it shares with Yale, but that the future of both funds is uncertain.

Yale Deputy Provost Charles Long said he was pleased to hear of MIT’s success.

“In some ways it’s comforting,” he said. “Now we know our returns aren’t a miracle and that we could reproduce them in the future. If another university consistently beat us we would be worried.”

Both Allan Bufferd, who retired from MIT last May after 19 years as chief investment officer, and Seth Alexander ’95, incoming president of the MIT Investment Management Company, declined to comment on MIT’s returns.

Richard Anderson, an endowment consultant at Hammond Associates, said MIT’s returns are the best he had heard of among top-performing university endowments. MIT had the seventh-largest college or university endowment at the end of the 2005 fiscal year, according to statistics compiled by the Chronicle of Higher Education.

MIT had the tenth-fastest growing endowment in 2005, boosting the total in its coffers by 17.6 percent. But Anderson said this year’s performance was no anomaly, noting that MIT’s returns have generally been good in recent years, despite a few setbacks. He attributed the gain this year, and over the past few years, to concentrating on types of investments similar to those Yale has made.

“I think [MIT] used the very same strategy as Yale,” Anderson said. “Venture capital, energy, real assets and emerging markets.”

Yale has used these diverse investments, as well as hedge funds — lightly regulated private funds that try to capitalize on market inefficiences to yield high rates of return — to reach a class-leading 17.2 percent annualized return over the last 10 years. In the same period, MIT had the equivalent of a 15.3 percent return every year.

Yale President Richard Levin said such long-term records provide a better way to judge performance than a single year’s returns.

“We’re not that focused on what the one year returns are,” he said. “If you look at Yale’s returns over the past 10 or 20 years, Yale is far ahead.”

MIT has a large presence in the private capital market, said John Griswold ’67, executive director of the Commonfund Institute, the educational arm of an investing firm that focuses on non-profits. Anderson agreed that private equity — using funds to invest in businesses not freely tradeable on the public stock market — has been especially profitable as of late.

But MIT has not always seen strong returns, and experts said it is difficult to predict what the future holds for the fund. At one point in 2000, the endowment totaled $6 billion, but fell to $5.1 billion by the 2003 fiscal year. In 2003, MIT Provost Robert Brown said in a press release that returns through 2006 were expected to be flat.

Anderson said MIT, like any top-performing endowment, could face problems in future years, or just as easily see continued astronomic growth.

“This is a very risky environment,” he said. “If, for example, international tanks, you’ll see the more risk-averse universities doing better. But in the long-term, everyone is going to bet that the asset classes that have propelled Harvard, Yale, Stanford and MIT forward will continue to do so.”

Alexander, who took over MIT’s investments last May, was in the Yale Investments Office for more than 10 years before moving to Cambridge, Mass. Griswold said the tutelage of David Swensen, Yale’s chief investment officer, should only help Alexander in his new role.

“Good management companies and good management tend to spawn progeny,” Griswold said.

Alexander is not the first member of Swensen’s team to leave for a more senior position elsewhere. Andrew Golden, SOM ’89, spent five years in the Yale Investments Office before leaving in 1993 and joining the Princeton University Investment Company in 1995 as its chief. Princeton’s endowment was the fifth largest last year, with a 17 percent return. This year’s figures are expected to be released later this week.

Harvard — the university that boasts the largest endowment in the country — returned 16.7 percent on its investments this past fiscal year.

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