Endowment posts strong return

Yale’s endowment returned 21.9 percent on its investments in the fiscal year that ended June 30, Chief Investment Officer David Swensen announced today.

Yale’s investments gained a total of $3.6 billion in the 2011 fiscal year to boost the current endowment value to $19.4 billion. Buoyed by the strong endowment performance, the University will siphon more funds from the endowment toward its operating budget than in the previous year, allocating $992 million for campus-wide expenses. In fiscal year 2010, the University put $986 million aside for the same purpose.

The double-digit jump in returns may indicate that University finances are recovering from the aftereffects of the 2008 recession, which caused Yale’s endowment to fall nearly 25 percent that year. After multiple rounds of budget cuts across the University and positive endowment reports from peer institutions, Provost Peter Salovey said Tuesday that he believes University finances are finally stabilizing.

Still, experts have said that figures reported by colleges and universities for fiscal year 2011 will not show the full impact of the period’s turbulent markets. Yale’s endowment also has yet to return to its pre-recession levels: Before the 2008 downtown, the endowment climbed to an all-time high of $22.9 billion.

“This is great that [the endowment] is recovering, but it’s not above where it was before and it may go down again,” said Sandy Baum, chairwoman of the economics department at Skidmore College and a senior policy analyst at the College Board. “Look what’s happened to the market in the last two weeks. For the past couple of weeks, the market has been very volatile.”

Despite that volatility, experts projected that academic institutions would likely report returns of 20 percent or higher for fiscal year 2011.

Yale’s 21.9 percent return is a drastic improvement from the endowment’s performance in fiscal year 2010, when the University posted an 8.9 percent return — the worst in the Ivy League. Yale’s most recent performance has already edged that of Harvard, which returned 21.4 percent in the 2011 fiscal year. Other peer institutions have yet to release their reports.

Baum cautioned against reading too much into one-year numbers released by colleges and universities, noting that long-term results are better indications of how an institution’s investments are faring. But Yale administrators have emphasized that the University’s nontraditional investment model is designed for a long-term view.

“The way in which Yale’s endowment compares to other university endowments on a year to two year basis is not especially important,” Provost Peter Salovey told the News last week. “What is important is that our approach can allow us to do better than a traditional endowment over longer periods of time — say five to 10 years — and with less risk.”

Pioneered by Swensen, Yale’s investing strategy favors illiquid assets such as real estate, oil, timber and gas, but also incorporates those more easily converted to cash. It propelled Yale to returns near or above 20 percent between 2004 and 2007, but impeded the University’s financial immediately after the recession.

Yale’s endowment currently ranks second only to Harvard’s, which is valued at $32 billion.

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