Endowment returns trail national average

Yale’s endowment returned less than the national average for higher education endowment returns in the fiscal year ending June 30, according to a preliminary study released Nov. 3.

The study, released by the National Association of College and University Business Officers (NACUBO) and the Commonfund Institute, a nonprofit consulting firm, found that endowments at 80 U.S. colleges and universities returned an average of 12.6 percent in the 2010 fiscal year. Yale’s endowment returned only 8.9 percent that year, but Commonfund Managing Director William Jarvis ’77 said it is still too soon to judge how the University is doing relative to its peers because it is better to look at endowment performance across a few market cycles instead of in a single year.

“You have to look at where endowments have come from and where they’re going,” Jarvis said. “I think the jury will be out for a while on Yale’s announced returns.”

Provost Peter Salovey said that while other university endowments can see short-term returns better than Yale’s in any given year, Yale’s endowment is “positioned for the long term.” Salovey said he and University President Richard Levin are confident in Yale’s current investment strategy and its ability to perform well “over the long haul.”

Levin said in an interview yesterday that Yale’s endowment returns, in fact, exceeded expectations for the 2010 fiscal year as administrators projected a 5 percent return.

The 12.6 percent average endowment return marks a drastic turnaround from the 2009 fiscal year, when the NACUBO-Commonfund study showed endowments were down 18.7 percent. Yale’s endowment fell 24.6 percent that year, while Harvard’s tumbled 27.3 percent. The University of Pennsylvania registered the best performance in the Ivy League, dropping only 15.7 percent, and Ancient Eight endowments collectively lost about $25 billion.

Still, Jarvis said endowments have only begun to rebound.

“To be back up is the beginning of a recovery,” Jarvis said. “It’s not anything near enough to put endowments where they were.”

The complete study will not be released until the end of January 2011, Jarvis said, but Commonfund decided to gather data for a earlier publication after what he called “rifle shot articles” in publications such as the Wall Street Journal and the New York Times attacked the investment choices of various institutions — including Yale. Preliminary studies are not released every year, though Jarvis said they might be published more frequently in the future.

From fiscal year 2009, the average effective spending rate — which is equal to the money an institution spends divided by its endowment value — stayed relatively flat among 64 colleges and universities. The rate dropped to 4.3 percent from 4.4 percent. An institution’s effective spending rate typically goes up when its endowment falls rapidly, Jarvis said, because institutions cannot cut their budgets fast enough to accommodate the decline.

For the second straight year, smaller endowments also performed better than larger ones. According to the data, institutions with assets amounting to more than $1 billion returned an average of 12.3 percent, while those with assets under $25 million saw average returns of 14.1 percent.

Higher education endowments as a whole underperformed the stock market average, according to the preliminary data, as the Standard & Poor’s 500 Index returned 14.4 percent for fiscal year 2010.

Last year’s NACUBO-Commonfund endowment study analyzed data from more than 842 colleges and universities nationwide.

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