Yale defied a nationwide decrease in endowment returns during the last fiscal year, performing twice as well as the average school, according to a survey of higher education institutions released Thursday.
The survey of 729 educational institutions, conducted by Commonfund, showed that the average endowment return dropped five points, to 9.7 percent, in the fiscal year ended June 30. In contrast, Yale’s earnings, which were released in October, increased from 19.4 percent to 22.3 percent. The survey’s authors said they view the nationwide results positively despite the decrease, attributing Yale’s exceptional performance to savvy long-term investment strategies.
Considering the market’s relatively poor performance last year, the survey’s results were “pretty good news,” Commonfund Institute Executive Director John Griswold said. A number of institutions, including Yale, showed unusually large deviations from the average, he said.
“We did see a fairly wide dispersion of returns this year, with Yale leading the pack or close to it,” Griswold said. “They must be pretty satisfied.”
Griswold said high-performance endowments like Yale’s benefited from having pioneered investment in hedge funds and other alternative sources more than a decade ago. As one of the oldest investors in such areas, Yale has an advantage over peers that were disappointed by alternative strategies last year, he said.
“Unless you happened to be in early and get some of the top smart guys who started funds at least 10 years ago, you’ve probably been dealing with a group of less-than-stellar managers,” Griswold said.
Griswold and Yale officials also attributed the endowment’s strong performance to David Swensen, the University’s chief investment officer. Swensen is especially skilled at picking investment managers, Deputy Provost Charles Long said, having diversified Yale’s assets while other schools invested more heavily in the stock market and other traditional sectors. The survey showed that schools with the most diversified portfolios tended to earn the highest returns.
“A much smaller fraction of our endowment is in the stock market,” Long said. “Diversifying the endowment in everything from the stock market to real estate to other kinds of venture capital investments is the way to go.”
The survey also showed that private donations to educational institutions increased for about half of the schools in the study, including Yale.
Participating institutions reported that they expect their earnings this year to decrease to 8 percent on average.
Provost Andrew Hamilton said that while he cannot forecast Yale’s returns, he is optimistic that the University’s investment office will continue to outperform its peers.
“I am not even sure the professionals will predict a return rate, given the uncertainties in the financial markets,” Hamilton said. “What I do know is that David Swensen and his team have consistently shown remarkable insight, judgment and patience to bring forward year after year a level of performance that is superior to any other endowment managers in the world.”
Griswold said most universities have underestimated their potential by listening to pundits in the media who predict a shaky stock market.
“It’s a kind of professional negativism that pervades Wall Street,” Griswold said. “People tend to be guided by what they read and hear.”
The Commonfund Institute conducts research activities for Commonfund, a firm that manages endowments for more than 1,600 educational institutions.