Endowment posts 4.7 percent return

While Yale posted a return of 4.7 percent on its investments during the latest fiscal year, the value of the endowment dropped by $100 million due to spending distributions.

Yale’s endowment performance, which leaves it at $19.3 billion as of June 30, is significantly weaker than the 21.9 percent return it posted in fiscal year 2011 but exceeds the returns registered at two other Ivy League schools so far this year. While the University of Pennsylvania posted earnings of 1.6 percent last week, Harvard University announced yesterday that its investments had experienced a 0.05 percent loss during fiscal year 2012.

“Thanks to the outstanding work of the Investments Office, Yale has derived maximum benefit from the generosity of its donors during challenging economic times,” University President Richard Levin said in a statement released today.

Under a model pioneered by Chief Investment Officer David Swensen, Yale’s endowment continues to favor alternative, illiquid assets such as private equity and real estate, which are targeted to make up roughly 35 percent and 22 percent of the endowment this fiscal year, respectively. Foreign equity, which is expected to make up 8 percent of the endowment, faced a particularly difficult fiscal year 2012, the statement notes: developed markets lost 13.8 percent and emerging markets fell 15.9 percent.

The latest fiscal period is the first year the endowment has declined since it lost nearly a quarter of its value in fiscal year 2009 following the onset of the nationwide economic recession. In fiscal year 2010, the endowment posted an 8.9 percent return — the worst in the Ivy League — but the strong performance in fiscal year 2011 was in line with the dramatic growth the endowment experienced during the “boom years” of the mid 2000s.

Yale has returned an annual average of 10.6 on its investments over the past decade. Spending from the endowment is expected to amount to just over a $1 billion this fiscal year, accounting for roughly 36 percent of the University’s revenue, according to today’s statement.

Comments

  • The Anti-Yale

    So, after a long, sweet, run, Yale joins the rest of the world which discoevers that ultimately, there is no free lunch, (Wall Street casino or not) .

    • Yalie

      Long sweet run? Did you happen to check the numbers for the year of the meltdown? The Endowment lost over a quarter of its value, making a 4.7% return look pretty good.

  • observer

    The article is confusing. In comparing the results at Yale and at other schools, you need to note the difference between “return on investment” and the actual change in the size of the endowment – which depends not only the “return on investment” but ALSO the amount received via fundraising LESS the money SPENT from the endowment – which may be 5% or so of its value.

  • The Anti-Yale

    Will Yale Bail ?

    What kind of Special Blue Hubris would make Yale think it was exempt from the Bubble?

  • tisquinn

    PK, what are you talking about? Yale had a fine, if not strong, return. And of course it’s not a free lunch—it’s a strategic investment staffed by an expert (and expensive) team without which Yale wouldn’t be able to provide the support to faculty, students and facilities that it does. The endowment funds everything from major student groups, to the Equestrian team, to endowed chairs, to (here I’m not so sure) this paper, whose comment section you so enjoy.

    • Yale12

      The endowment does not fund this paper. It’s entirely independent from Yale–doesn’t take a dime from the university.

  • The Anti-Yale

    David Swensen’s Guide to Sleeping Soundly
    Financial wisdom for troubled times—plus strong opinions on the current crisis—from Yale’s in-house Warren Buffett
    March/April 2009
    by Marc Gunther ’73

    Marc Gunther ’73, a contributing writer to Fortune magazine, blogs at marcgunther.com.

    Editors’ note
    No one, not even David Swensen, can know precisely what’s best for your individual portfolio without having seen it. Therefore, please keep in mind that this article offers general information rather than a prescription for your specific situation. If you need investment advice, please consult a registered adviser.

    In just under a quarter-century as Yale’s chief investment officer, David Swensen ’80PhD has generated Bernard Madoff–like returns—except that Swensen made his money honestly. Under his leadership, Yale’s endowment has generated an astonishing 20 consecutive years of positive returns, from 1988 to 2008.
    individual investors . . .

    Yale Alumni Magazine: Has it been a difficult time for you?

    Swensen: In some ways, yes. I absolutely love the idea of producing ever-increasing levels of support for Yale. Looking ahead to the next few years, that’s not going to be in the cards. That’s a difficult reality to deal with.

    But in terms of the day-to-day work, managing through this economic and financial crisis is absolutely fascinating. It’s exhausting, but fascinating.

    Y: It may be fascinating to you, but it’s discouraging for those of us who have watched our 401(k) values plummet. Given all the turmoil and uncertainty, what should individual investors do?

    S: If an individual investor followed the program I outlined in Unconventional Success [see box], they probably did reasonably well, through the crisis, thus far. They’d have 15 percent of their assets in U.S. Treasury bonds. They’d have another 15 percent in U.S. Treasury inflation-protected securities. Those two asset classes have performed well.

    Of course, the other 70 percent of assets are in equities, which have not done well. With all assets, I recommend that people invest in index funds because they’re transparent, understandable, and low-cost. So, the equity holdings have gone down step-by-step with the declines in the market.

  • mkbrussel

    What are “spending distributions”—that which is said to decrease the endowment despite its return?