The three colleges that have returned higher endowment figures than Yale so far this year have one thing in common: endowment leaders who trained under Yale’s Chief Investment Officer David Swensen.
In fiscal year 2015, Princeton, the Massachusetts Institute of Technology and Bowdoin College posted endowment returns of 12.7, 13.2 and 14.4 percent respectively, compared to Yale’s 11.5-percent return. These figures came out of a year that had a predicted 3.6 percent median return for large endowments, according to the Wilshire Trust Universe Comparison Service, a global advisory company specializing in investment products. The three schools’ impressive performances can largely be attributed to Swensen’s portfolio investment technique, which endowment chiefs trained under him have brought to other universities, according to finance specialists familiar with university portfolios.
“The people that run the investment offices in Princeton, MIT [and] Bowdoin all used to work in the Yale Investment Office,” School of Management professor Roger Ibbotson said. “They all use pretty similar methodologies. They are different universities with different portfolios, but quite a few similarities there.”
Seth Alexander ’95 worked as a director at the YIO for 10 years before taking up the presidency at MIT’s Investment Management Company in 2006. Andrew Golden, who became president of the Princeton University Investment Company in 1995, worked with Swensen for five years at Yale. Bowdoin’s Paula Volent also worked at the YIO before becoming senior vice president for investments at Bowdoin.
Speaking at a Jonathan Edwards Master’s Tea last week, Swensen highlighted the importance of hiring exceptional endowment managers. He attributed Yale’s endowment success not to having a different asset allocation than other investors, but instead to having hired the best possible managers in each asset class.
“If you’re not going to set up an investment office with 30 or 40 high-quality professionals whose mission is to generate these returns that are better than the market, you just won’t win,” Swensen said at the tea. “You don’t win just by taking more risk anymore.”
Charles Ellis ’59, founder of the financial services firm Greenwich Associates, highlighted the importance Swensen places on hiring employees with integrity and strong morals. Ellis added that it is no surprise that managers who Swensen mentored later became very successful leaders.
Although its endowment returned a smaller percentage this year in comparison, Yale remains ahead of Princeton, MIT and Bowdoin in its total endowment value of $25.6 billion. The only two schools with greater assets than Yale are Harvard and the University of Texas System.
Ibbotson said there is room for randomness in portfolio returns, adding that it was not significant that other universities showed slightly bigger returns than Yale this fiscal year.
“Yale actually did very well,” Ibbotson said. “Somebody has to do better, of course, but Yale did better than most by far.”
In fiscal year 2014, Yale had the nation’s largest endowment returns with a total of 20.2 percent. Bowdoin, MIT and Princeton followed closely with 19.2, 19.2 and 19.6 percent, respectively. Ibbotson said these figures demonstrate that small fluctuations in the short term do not predict patterns in the long term.
“I imagine Yale shows up on top in the long run,” Ibbotson said.
Over the past 10 years, Yale has had annual net investment returns of 11 percent.