Amanda Hu

This story has been updated to reflect the version that ran on Sept. 27.

Yale’s endowment outperformed its peers in the last fiscal year, despite dropping in value for the first time in five years.

The endowment fell from $25.6 billion to $25.4 billion in fiscal 2016, the Investments Office announced Friday, ending a period of robust financial growth for Yale that has been ongoing since the 2008 financial collapse. But given negative returns for university endowments nationwide, Yale’s 3.4 percent return — a five-year low — is cause for the Investments Office to celebrate.

Yale’s return of 3.4 percent is robust compared to an average loss of 2.7 percent among colleges and universities over the past year, according to Cambridge Associates, an national endowment management company. Harvard University, whose endowment returns have lagged behind Yale’s for the past six years, reported Thursday that its endowment dropped in value by 2 percent last year.

The drop in endowment returns arrives in conjunction with an increase in administrative spending: This fall, the University finished five major campus building projects, including a new chemistry laboratory and the renovation of the Center for British Art. Yale administrators also announced a host of new spending initiatives like a $50 million campaign to recruit more diverse faculty members, increases to the undergraduate financial aid budget and additional funding for campus cultural centers.

After two especially strong years — the endowment returned 11.5 percent and 20 percent in 2015 and 2014, respectively — Yale is leaning more heavily on endowment spending. The University projects to spend around $1.2 billion of the endowment on the budget, around 34 percent of Yale’s total revenue for the year.

The endowment has hit new highs in each of the last five years, growth which Yale has credited to Chief Investment Officer David Swensen. But the slowdown in growth and fall in endowment value is out of line with this successful trend.

Swensen could not be reached for comment over the weekend.

Many U.S. college and university endowments are struggling to grow in a market with low interest rates and volatile world markets.

The markets may partly be to blame for Yale’s poor performance. A report from Wilshire Trust Universe Comparison Service found that endowments have been performing poorly since 2015.

In the long term, Yale’s returns are still better than its peers, with 10-year returns of 8.1 percent on average. In Investments Office reports, Yale has tended to stressed the endowment performance over many years than a single fiscal year. While Harvard’s endowment management team has seen four changes in leadership in a decade amid stagnant growth, endowment experts have seen David Swensen’s decades long tenure as a stabilizing force at Yale.

Yale’s investment strategy, laid out in asset allocation targets, remains largely the same going into fiscal 2017 , with slightly more emphasis on certain assets like venture capital, which has earned Yale considerable returns in past years.

  • Hieronymus Machine

    As posted over at The Crimson:

    Since the start of the Swensen era, the Y/H endowment ratio has progressed from about 44% to its current 72%.

    That puts H at ~1.7MM/student; Y, ~$2.1MM (mitigated somewhat by higher labor costs and *much* higher relative operating costs).

    • Hieronymus Machine
    • jeffJ1


      • Hieronymus Machine

        I’ll break it down for you. Yale’s fiscal year-end 1984 endowment value stood at $1.06Bn; Harvard’s, $2.69Bn. The Yale-to-Harvard endowment ratio the year before David Swensen took over stood at roughly 39% (in my earlier comment, I used 1985 data…).

        Had Yale employed the same strategy as Harvard, the ratio would have stayed the same (excluding the differing operating budgets); instead, Swensen *outperformed* HMC to such a degree that the Yale’s endowment is now ~72% of Harvard’s. Truly phenomenal.

        Harvard’s endowment is worth about $1.7 million per student; Yale’s is about $2.1 million per student, despite Yale’s relatively higher operating and union costs.

        BTW: Harvard employs 200+ highly paid staff to underperform the Yale team of Swensens & Takahashi, 15 or so directors and a handful of recent Yale grads… (Yes, external managers earn fees, but I understand Mr. Swensen et al. drive a hard bargain).

        I’ve also pointed out elsewhere: David Swensen is the givingest Yale man *ever.* Through his acumen and persistence — and salary foregone — he has given Yale maybe $10Bn of alpha (risk-adjusted return versus a benchmark, in this case, compared with what the “Harvard Model” would have earned) since taking over.

        Some interesting articles:

        • jeffJ1

          Huh. Okay.

          That’s an awfully complicated way to say “it irks me on a personal level that Harvard’s endowment is much, much larger than Yale’s.”

          • Hieronymus Machine

            And thus are sounded the depths of your ignorance (cf. the ballad of “Bottom’s Dream”).

          • jeffJ1

            lol thanks for the citation! You sound like fun.

  • Nancy Morris

    There was no “poor performance” by the Yale Investments Office. The Yale endowment earned a perfectly respectable positive 3.4 percent return last fiscal year (as an aside, that’s 540 basis points more than it’s Harvard counterpart). Yale (like most endowed institutions) withdraws a percentage of its endowment each year based on a smoothing function, a function that this year required returns of 8 percent to leave the endowment at par, so the endowment shrank after withdrawals. I know of NO institutional endowment that earned 8 percent this year, and while there can always be surprises (has Princeton reported?), I very much doubt there will be one.

    I am not completely sure, but I believe the Yale smoothing function is directly based in part on past returns. So the function allows for somewhat larger withdrawals this year if last year’s returns were robust (as they were). One consequence ( I think, but am again not sure) is that Yale has been withdrawing a somewhat higher percentage of its endowment each year than Harvard has been.

    Endowment performance is not calculated by reference to university spending. And SPENDING money is not comparable to LOSING money, unless one spends it poorly. That’s where the quality of the administration comes in, another area (in addition to the YIO) in which Yale has been amazingly advantaged in recent years. The whole purpose of the endowment is to have its money to SPEND. If Yale chose to SPEND NOTHING from the endowment this year, it would have grown by 3.4 percent, which by the wacky reasoning of this article would have been a continuation of a “good thing,” except that neither Yale and its community would have been better off because Yale sat on its pile. Investment LOSSES are something else entirely: they mean one has less to SPEND. I don’t mean to be too snarky here, but is it possible Swensen doesn’t return the YDN’s calls because he can’t stand having repeatedly to explain things like the difference between spending from the endowment and investment losses? Just asking.

    While Yale did not lose money this year, Harvard lost 2 percent, or about $750 million, not the $2 billion suggested by countless media headlines and this silly article. However, a much larger portion of Harvard spending is of highly questionable quality, reflecting the impaired quality of its administration. (Smith Center? Really? Is Don Rickles running Harvard in retirement?) The more telling aspect of that situation is the note by the dangerously honest interim Harvard investment chief Ettl that underperformance (losses?) at Harvard will likely continue for years.

  • Nancy Morris

    The headline of this article is an especial embarrassment.

    Bloomberg, which has a better grasp of such matters than does the YDN, features an appropriate headline: “Yale’s 3.4% Gain Is Top Performer as Endowments See Losses.”

  • bookish

    “All good things come to an end?” Um….okaaaaay….

    The NYTimes’ headline and perspective:

    “Yale Endowment Earned 3.4% in a Year When Many Peers Lost” —

  • jngnyc

    This is a ridiculous (and misleading) article. The “news” is that the Yale endowment earned in 3.3% in a very tough year for comparable university endowments. Given the “spending rule,” which uses a smoothing approach to provide a stable income stream in light of the history of endowment returns, the endowment shrank in size, 0.8%.

  • ShadrachSmith

    The purpose of the administrators is to steal the money, Otherwise there would be free books, tuition, and food.

  • Nancy Morris

    Here is a chart that might be interesting to those who are interested in charts:

  • Hieronymus Machine

    Also, a link to the 2015 report would have been nice. Truly fascinating: