Great expectations abound for the release of the University’s endowment performance over the past year.
In the coming weeks, Yale will publicize the details of the returns that its investments earned in the period of July 1, 2013 to June 30, 2014 — also known as fiscal year 2014. Though Provost Benjamin Polak could not be reached for comment, financial experts interviewed are predicting positive growth in the numbers.
According to experts, the American economic environment in fiscal 2014 likely produced sizeable returns for endowments nationwide, including Yale’s. While most schools have not yet released official figures, the U.S. stock market’s strong performance, coupled with a rebounding real estate sector and robust bond returns, indicates that the endowment will rise. In fiscal year 2013, the University’s assets grew to $20.8 billion and returned 12.5 percent, beating the national average of 11.7 percent.
“I’m sure it’s going to be a pretty good year for the endowment and endowments in general,” School of Management professor Roger Ibbotson said.
The University’s endowment is largely comprised of three asset classes: absolute return, private equity and real estate. Massachusetts Institute of Technology professor Jonathan Parker ’88 said it is possible to roughly estimate the performance of an endowment from its allocation of each type of asset and that asset’s average return.
Ibbotson said that he predicts the returns on absolute return and real estate will be in single-digit positive numbers.
John Griswold, executive director of the institutional investment firm The Commonfund Institute, also predicted growth, particularly pointing to the rebound of the real estate industry.
“It’s looking like a pretty good year,” Griswold said.
The performance of private equity can often be predicted by analyzing public equity markets. The S&P 500 stock market index, which is considered to be one of the best representations of the public equity market, saw a total return of nearly 20 percent over both the past year and the one before..
Rising markets and support from central banks to keep interest rates low have likely boosted endowment returns as well, according to William Jarvis ’77, managing director of The Commonfund Institute.
“I think it’s going to end up being a strong year for endowments generally because many strategies have had benign environments over the past year,” Jarvis said.
Parker echoed Jarvis’s statement, arguing that Yale does not seem to be the only institutional investor likely to see strong growth in fiscal year 2014. Investors in a diversified set of index funds with low fees should also do well, he said.
While financial experts said the rise in stock markets would benefit endowments with heavy investment in public equity, they cautioned against adopting poorly diversified portfolios. The great virtue of Yale’s portfolio, Jarvis said, is that it’s “designed to be an all-weather portfolio.”
In a February report, the Yale Investments Office reported that its risk-adjusted growth rate remained strong. According to the report, Yale’s mix of assets under current management produces a portfolio expected to grow at 6.2 percent with risk of 14.8 percent.
Optimism across institutions is strong. In a Commonfund Investor Outlook survey in March, several hundred nonprofit institutional investors said they expect their portfolios to grow by an average of 7.3 percent in fiscal year 2014. On Friday, the Massachusetts Institute of Technology said its assets returned 19.2 percent over the past year.
Yale’s endowment generated an investment gain of $2.29 billion in fiscal year 2013.