Yale’s astonishing 41 percent endowment return during fiscal year 2000 has made it the second wealthiest university in the world behind only Harvard, according to a report issued by the National Association of College and University Business Officers.
Yale’s stellar investment performance in the last fiscal year dwarfed the average university return, enabling the endowment to squeak past the University of Texas system’s $10 billion in holdings. Yale’s endowment is valued at $10.1 billion, and Harvard’s holdings total $19.2 billion.
Universities nationwide averaged a 13 percent return rate, which far outpaced the performance of broad-market indexes between July 1, 1999, and June 30, 2000. While the increased wealth was widespread and already-large endowments posted some of the highest returns, mid-year reports for fiscal year 2001 from other institutions indicate that mere single digit increases this year will be impressive.
“We never expected to have another year like [last year] again,” Yale President Richard Levin said.
Investment strategies employed by most colleges proved enormously successful last year as universities beat broad-market indexes. Between July 1, 1999, and June 30, 2000, the Standard & Poor’s 500 Composite Index rose 7.2 percent. The 13 percent average university endowment return also topped the 11 percent mean in fiscal year 1999.
The enormous investment success caused eight university endowments to pass the $1 billion mark for the first time, according to the report, which surveyed 569 colleges.
But it was the wealthiest universities whose endowments posted the biggest returns. Thirteen of the 25 largest endowments increased more than 30 percent, and the average return of all schools with endowments larger than $1 billion was 29.2 percent. Endowments under $100 million in value averaged just a 9.7 percent return.
Among the richest 25 institutions, only five schools, led by Duke University and the University of Notre Dame, topped Yale’s whopping 41 percent yield.
Yale’s recent financial achievements are attributed in part to strategies used by Chief Investment Officer David Swensen. Over the past several years, Swensen has sought to reduce Yale’s market exposure and instead focus investments on private equity and hedge funds. His approach has contributed to the endowment’s growth to over $10 billion from just $1 billion in 1985.
The future, however, does not appear to be so bright. Adverse market conditions are taking their toll on university holdings. Partial 2001 returns from some top institutions in a separate NACUBO report indicate that universities will be fortunate to have a positive return when the fiscal year ends June 30.
Of the 25 wealthiest institutions, 20 reported returns between minus 2.9 percent and positive 5.4 percent through Dec. 31. The University of Texas system reported that its endowment was worth less at Dec. 31, 2000 than at July 1, 2000.
“Our returns are very satisfactory when compared with that range,” Levin said. “Things are holding up OK, but we’re not at all pessimistic about the future.”
Yale’s mid-year totals remain a mystery. Yale and Harvard do not release mid-year reports and did not participate in the survey. Remaining consistent with University policy, no Yale administrator would reveal the endowment’s performance to date in the current fiscal year.