Yale’s fiscal 2013 endowment return in line with national average

For university and college endowments nationwide, the fiscal year that ended June 30 was a good year.

American college and university endowments saw an average return of 11.7 percent in fiscal 2013, up from negative 0.3 percent in fiscal 2012, according to a report released Tuesday by the National Association of College and University Business Officers and the Commonfund Institute. Based on the 2013 NACUBO-Commonfund Study of Endowments, which collected data from 835 institutions, the report found that investment returns were more consistent across different endowment sizes during fiscal 2013 than they had been in previous years. Yale’s endowment — which earned a return of 12.5 percent for fiscal year 2013, up from 4.7 percent during fiscal year 2012 — outperformed the national average but was bested by the endowments of several institutions, including the University of Pennsylvania and Brown University.

“It’s generally good news,” said John Griswold, executive director of the Commonfund Institute. He added, however, that the authors of the reports are not “prognosticators.”

“We don’t have a crystal ball. There are a lot of things that are still positive about investments. But there’s a lot of uncertainty,” Griswold said.

Griswold said fiscal year 2013 was an impressive year for most endowments because of the stock market’s strong performance. Though many endowments still have not returned to their pre-recession size, it is good news to see healthy growth, he said.

The report grouped schools into six categories based on endowment size. Schools with endowments between $500 million and $1 billion saw the highest average return — 12 percent — while schools with endowments smaller than $50 million saw the lowest average return, 11.4 percent. Though schools with over $1 billion in assets, such as Yale and Harvard, earned an average return of 11.7 percent, they still had the highest average return across the past 10 years.

The study also found that the spending rate of universities from their endowments grew slightly from 4.2 percent in fiscal year 2012 to 4.4 percent in fiscal year 2013. Institutions must spend from their endowment to support their educational mission and infrastructures, Griswold said, especially since government support to universities has declined.

“Despite the improvements in investment returns over the past year, colleges and universities are in a period of rethinking their budget-setting strategies and priorities,” NACUBO President and Chief Executive Officer John Walda said in the report. “We have gone through a great period of volatility in the financial markets over the past 10 years, along with deep cutbacks in government funding for higher education and declines in enrollment and tuition revenue at some schools. Thus, the strong performance of endowments this year, while gratifying, must be put in context of continuing stress on tuition, state government appropriations, and other revenue sources.”

Yale and other top universities tend to invest heavily in alternative investment strategies such as private equity, hedge funds and natural resources. Over the past two decades, most institutions began to emulate the diversified style of investing pioneered by Yale Chief Investment Officer David Swensen.

But the report found that the long-term trend of increasing asset allocations toward alternative investment strategies seems to have slowed.

However, the data on this issue was not as dramatic as NACUBO-Commonfund representatives expected. While preliminary data released in November, representing nearly 500 institutions, from the 2013 study pointed to the average endowment allotting 47 percent of their funds to alternative assets, down from 54 percent in fiscal 2012, the final report, which included data from 835 institutions, revealed that universities only decreased alternative asset allocations by one percentage point, to 53 percent in fiscal year 2013.

“This relative pause in the decade-long growth of alternative strategy allocations will bear watching in future years,” Griswold said in the report.

Experts interviewed were not surprised by the study’s results.

Terrance Odean, a finance professor at the University of California, Berkeley, said because the stock market was up nearly 20 percent over the past year, he would have been surprised if endowments had declined on average.

“My first reaction, is yup, that sounds about right,” he said.

The Yale endowment was $20.8 billion as of June 30.

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