It’s official: Endowment posts worst loss ever

The Yale endowment posted a 24.6 percent investment loss in the fiscal year that ended June 30, falling to $16.3 billion in its most severe decline ever, University officials announced Tuesday.

The $5.6 billion decline is in line with the University’s projection last December, so it comes as “no surprise,” Provost Peter Salovey said. But it does allow administrators to move ahead with planning for next year’s budget because they can now determine how much revenue they can expect from the endowment.

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Spending from the endowment in the University’s 2009-’10 fiscal year is expected to total $1.1 billion, down from $1.2 billion last year. To cushion the effect of the market on the University’s budget, the amount that Yale spends from its endowment is smoothed over several years. But since the University’s budget is based on a model that counts on 10 percent annual growth, the reduced payout will tear hole in the budget that runs in the hundreds of millions of dollars.

The return “falls in the range of expected outcomes” in a year when equity markets across the globe fell by some 30 percent, the University said in a statement that was drafted with direct involvement by David Swensen, Yale’s chief investment officer.

“If you have a return like you did June 30, 2007, when we were up 28 percent, or June 30, 2000, where we were up 41 percent — if it goes up 28 percent or 41 percent it can go down by double digits too,” Swensen said in an interview last January. (He declined to comment for this article.) “It’s just that there was a very long period, more than 20 years, where that didn’t happen.”

Swensen’s widely imitated approach to investing favors nontraditional assets, which are less liquid than stocks and bonds. In the aggregate, Yale’s marketable assets declined by just 13.1 percent. But private equity holdings lost 24.3 percent of their value, and real assets, the largest part of the University’s endowment, posted a decline of 33.9 percent.

Still, Swensen has said the financial crisis has not altered his strategy.

“While the decline in endowment value in the current financial crisis caused some observers to question the tenets of Yale’s investment strategy, when evaluated with a time horizon appropriate for a long-term investor, the University’s equity-oriented, well-diversified portfolio continues to provide the best foundation for future investment success,” the Investment Office said in its annual report published last March.

Swensen’s approach emphasizes investing for the long term, and, indeed, over the past 10 years, Yale’s endowment has still outperformed benchmarks: The fund returned an average 11.8 percent over the past decade, beating annual results for domestic stocks of negative 1.2 percent and domestic bonds of 6 percent. If Yale’s investments had performed comparably to the average return of other college and university endowments over the past 10 years, the endowment would be $10 billion lower.

But this year saw a stunning reversal of fortunes: Endowments such as Yale’s and Harvard’s, which racked up enormous gains in recent years through alternative and illiquid investments, were hit hardest in the financial collapse. Meanwhile, portfolios such as the University of Pennsylvania’s, which holds mostly stocks and bonds, lost 15.7 percent.

The exact return of Yale’s endowment as it stood on June 30, 2009, took until September to tabulate because so many of the assets are illiquid and hard to value, and because the Investments Office needed reports from the thousand or so external managers who directly handle most of the University’s portfolio.

The endowment is the University’s largest source of revenue, accounting for about 42 percent of the operating budget.


  • Alumna78

    “Still, Swensen has said the financial crisis has not altered his strategy.”
    Wasn’t Einstein’s classic definition of insanity doing the same thing over and over again and expecting different results? Swensonian economics have tanked a number of other endowments too, some of which were much smaller than Yale’s and in less of a position to recover.

  • anon

    Thank God Sen. Grassley was there to intimidate the university into spending all the extra money from the boom time so now we’re looking at more layoffs and major reductions in function. His wise financial hand will guide us through the hard times and we should be grateful for his wisdom.

  • Yale ’00

    Yale’s decision to spend a little more from the endowment each year still seems correct to me.

    There is no point in saving money forever and never using it. As long as the annual payout rate remains below the average inflation-adjusted growth rate of the endowmnent, the endowment is growing over time. Even taking this year’s bad numbers into account, the inflation-adjusted growth rate remains higher than the payout rate. So, long term, it’s growing.

    It’s important to remember: Yale has a purpose — research and teaching. The point is not to accumulate the biggest endowment for its own sake. The endowment is just a means to an end.

  • Local Guy

    I am very frustrated by Yale’s fixation on its endowment as the only measurement device to assess and manage the current crisis.

    My fear is that if Levin continues to enforce cuts in the labor force and in spending, the whole local climate of New Haven is prone to change and has already partly done so. That defeats all successful efforts that have been undertaken over the last decades.

    I was very happy to find this article in the nytimes which basically sums it up: “What you measure affects what you do,” (…) “If you don’t measure the right thing, you don’t do the right thing.”

  • ’08


    You are retarded.

    Swensen’s investment horizon is PERPETUAL. Yale needs the endowment to last FOREVER (until the end of time).

    To measure the success of the endowment during a 1 year period is absurd.

    These are paper losses anyway.

  • Wow

    Nice to see the maturity of our young alumni. Try not to lose your temper in the real world or you could end up having equally mature comments left on your article.

  • To #8

    < >

    “Paper losses” have counted ever since we went off the gold standard.


    Seriously, anyone who thinks “Swensonian economics has failed” needs to learn a thing or two about portfolio management.

    As Levin pointed out, over his entire period of management, Swensen has beaten the market and beaten almost every other manager. Even with the losses (which were experienced not just by Swensen but by the market as a whole), Swensen still holds up well to scrutiny.

    Also, I agree with #2.

  • #8

    Paper losses don’t count.

  • Townie

    My portfolio did better. I’m outa here.

  • A Pound of Flesh

    Usury. Portfolio poker. T’aint honorable to make something for nothing (and then BOAST about it even as a “long term strategy”!) Yale ain’t honorable.