Though Yale posted a subdued 4.7 percent return on its investments for the latest fiscal year, the University outperformed many of its peer institutions in endowment growth.
Returns across the Ivy League for the fiscal period that ended June 30 were significantly lower than in the year prior, with Yale experiencing a sharp decrease from the 21.9 percent figure reported in fiscal year 2011. But the University’s return was second-best in the Ivy League, trailing only Dartmouth’s 5.8 percent performance.
“The one-year returns are quite good on a relative basis, meaning we have done well compared to most of our peer group,” Provost Peter Salovey said in a Monday email. “However, the recovery from the recession is slower than anticipated, and so one-year growth in the endowment does lag our original budget model.”
U.S. colleges and university endowment experienced an average 0.3 percent loss this year — a significant drop from the 19.2 percent average return in fiscal year 2011, according to a preliminary study released Thursday by the National Association of College and University Business Officers and the Commonfund Institute that surveyed 463 higher education institutions. Endowments worth more than $1 billion earned average returns of 1.2 percent.
The value of Ivy League endowments as of June 30 ranged from $2.52 billion to $30.7 billion, with Yale’s $19.3 billion endowment coming in second only to Harvard’s.
Larger endowments have historically earned higher returns than smaller ones, NACUBO President and Chief Executive Officer John Walda and Commonfund Institute Executive Director John Griswold said in a statement. They added that this trend was briefly reversed during the recent financial crisis, when “smaller institutions tended to outperform owing to their larger allocations to fixed income and short-term securities.”
William Jarvis ’77, managing director of the Commonfund, told the News that many fiscal years are characterized by trends in investment performance, such as the 2009 and 2010 theme of a “strong rebound performance by the domestic stock market.” Fiscal year 2012 was different because “there was no overriding theme,” he said.
“Markets did poorly relative to their long-term performance,” Jarvis said, citing the U.S. stock market and international equities as examples. “Those factors played out in portfolios in different ways depending on how assets were allocated.”
Yale’s investment model, which was pioneered by Chief Investment Officer David Swensen and has been emulated by many of its peer institutions, continues to favor illiquid, alternative assets such as private equity and real estate as part of its diverse portfolio. The Investments Office aims to allocate roughly 35 percent and 22 percent of its endowment to those two illiquid asset classes, respectively, in the current fiscal year.
Colleges and universities with endowments larger than $1 billion invested 59 percent of their endowment assets in alternative strategies on average this year, compared to only 14 percent for institutions with endowments worth less than $25 million, according to the NACUBO-Commonfund report.
Several university investment offices have cited difficult global economic conditions as a cause of the modest investment returns in fiscal year 2012.
“The first five months of the year were characterized by a sharp downward correction in the public equity markets, driven by the U.S. debt ceiling debate, stress in the eurozone, and fears of a slowdown in the Chinese economy,” said Jane Mendillo, president and chief executive officer of Harvard Management Company, in a September report.
U.S. markets improved considerably during the winter and spring, resulting in a 5.5 percent increase in the S&P500 Index for fiscal year 2012, but international equity in developed and emerging markets ultimately posted double digit losses for the year.
The value of Yale’s endowment dropped by about $100 million this year due to spending distributions. But Salovey said that when determining spending levels, administrators focus less on short-term fluctuations in investment performance than on the long-term growth of the endowment, which has grown from $2.8 billion to $19.3 over the past 20 years.
While the University’s endowment lost nearly a quarter of its value in fiscal year 2009 following the onset of the nationwide economic recession and posted the worst return in the Ivy League in fiscal year 2010 of 8.9 percent, Yale reported a 21.9 percent return in fiscal 2011, putting the University back on par with the performance of its peer institutions.
Yale’s endowment delivered an average return of 10.6 percent over the past 10 fiscal years.