Allen Chang

Yale’s endowment grew by a modest 11.3 percent, from $25.4 billion to $27.2 billion, during the fiscal year that ended June 30, putting the University, traditionally the perennial top performer, below the national average for nonprofit investment growth.

In a study of the annual returns of more than 400 endowments and foundations, the investment consulting company Cambridge Associates found that average growth for the past fiscal year was 12.7 percent, 1.4 percentage points above Yale’s endowment growth. Although the University lagged behind its peers this year, experts and administrators agree that Yale’s long-term record leads the field by a significant margin and that there is no reason to see this year’s result as a major disappointment.

University Provost Benjamin Polak told the News in an email that he is “delighted” with the return.

“Over a thirty-year period, the Yale Investment Office has produced higher returns than anyone else while reducing year-to-year variability,” Polak wrote. “We are all grateful to David Swensen and his amazing team.”

Yale’s endowment has grown by an average of 12.1 percent over the past 20 years, easily surpassing the estimated 7.3 percent average return of college and university endowments during this time, according to a University press release.

Yale plans to spend $1.3 billion of its endowment on faculty salaries, student scholarships and other operational expenses in the 2018 fiscal year. Money from the endowments represents 34 percent of the University’s entire 2018 operational budget.

Charles Skorina, an investment executive recruiter, said Yale’s relatively sub-par performance in fiscal year 2017 is not surprising. He explained that Yale invests heavily in private markets, which prevented it from reaping the benefits of an equity bull market last year. The Standard & Poor’s 500 index, which tracks the market capitalizations of 500 large companies with stocks listed on major American stock exchanges, rose 15.46 percent over the last fiscal year. Yale’s investment in domestic equity has hovered around 4 percent of the total endowment since 2014.

“Given the philosophy, allocations and construction of Yale’s portfolio, when the stock market is super-hot, Yale will underperform,” Skorina said. “We know that in advance.”

Roger Ibbotson, a Yale School of Management professor and chairman of an investment firm, said there is no need to defend the return, which seems “good” to him. Ibbotson explained that it is almost impossible to be above average every year.

Since the 2008 economic crisis, Yale has diversified its portfolio, bringing the share of venture capital and hedge funds to respectively 17 and 22 percent, respectively, as of June 30, 2016. The strategy protects Yale’s endowments during downturns in the public market, including last year, when many peer institutions saw negative returns on their investments.

According to Skorina, University Chief Investment Officer David Swensen diversified the University’s portfolio to include more investments in real estate, private equity and other private markets because he believes, in the long run, it is impossible for money managers to beat the public market.

Asked if he thinks this year’s performance will prompt the Investment Office to reconsider its strategy, Skorina said no.

“The consensus is that the stock market has a high volatility,” Skorina said. “We don’t know what’s going to happen and, therefore, Yale is not going to change a thing.”

Andrew Lo ’80, a professor at the MIT Sloan School of Management, said he doubts that the boom in public market alone explains Yale’s relatively low performance this past year. He said although the private market tends to respond more slowly to a market boom, it also performed strongly this past year.

Although Yale’s endowment saw slow growth this past year, Harvard’s fared even worse, growing by only 8.1 percent. The gap between the two universities’ endowments is closing — Harvard’s endowment grew from $35.7 billion to $37.1 billion this past year, making it about $10 billion larger than Yale’s.

Both institutions trailed their peers in the 2017 fiscal year. Massachusetts Institute of Technology announced a 14.3 percent return on its endowment, while Stanford’s and Princeton’s grew by 13.1 percent and 12.5 percent respectively. The chief investment officers at all three universities worked at the Yale Investments Office under the supervision of Swenson and Dean Takahashi before taking their current positions.

Jingyi Cui | jingyi.cui@yale.edu