Yale endowment grows 5.7 percent
While Yale’s 2024 fiscal year investment return is slightly up from last year and represents a gain of $2.3 billion, it places Yale second-last among its Ivy League peers.
Amay Tewari, Senior Photographer
The University’s endowment grew 5.7 percent for the 2024 fiscal year, up from an investment return of 1.8 percent last year.
This year’s investment return translates to a gain of $2.3 billion, according to a University press release published Friday. After disbursing $2.0 billion to Yale’s operating budget and accounting for $231 million in gifts, the total value of the endowment increased from $40.7 billion in June 2023 to $41.4 billion in June 2024. The amount Yale received in gifts for 2024 is down from the $292 million in 2023.
Yale’s investment return also places it as second-lowest in the Ivy League, above Princeton’s return of 3.9 percent. The top three performers in the Ivy League this year were Columbia University, Brown University and Harvard University with returns of 11.5 percent, 11.3 percent and 9.6 percent, respectively.
“Given our significant allocation to private assets, we expect to lag during periods of strong public market performance, particularly when exit markets for private assets are depressed,” Matt Mendelsohn, Yale’s chief investment officer, said in the press release. “As always, we remain focused on achieving investment success over the long term, knowing that doing so is likely to bring stretches of short-term underperformance.”
In the press release, Mendelsohn also highlighted that Yale’s 10-year return “remains strong.” Over the past decade, Yale’s 9.5 percent annualized return puts it in second place in the Ivy League.
“Yale’s endowment has experienced a short-term period of underperformance, but I would not be very concerned due to its sound investment philosophy and long-term track record,” John Longo, CIO of Beacon Trust and professor at Rutgers Business School, wrote to the News. “The S&P 500 increased roughly 25% over the July 1, 2023 to June 20, 2024 time period. Hence, Yale’s historical underweighting to U.S. publicly traded equities negatively impacted its investment performance during the last fiscal year.”
The “Yale Model” of investing, pioneered by former CIO David Swensen and former senior endowment director Dean Takahashi, favors asset diversification away from stocks with an emphasis on alternative investments, such as private equity, venture capital, hedge funds and real estate.
Over the past three decades, the Yale Model has since become the industry standard in the higher education investment space and is used by other institutions such as Harvard, Princeton, the University of Pennsylvania and the Massachusetts Institute of Technology.
“Swensen felt that equities and fixed income markets are too efficient and impossible to beat over the long term,” Charles Skorina, an endowment expert who leads a recruitment firm for investment officers, wrote to the News. “Private markets have less transparency (information) and better opportunities to those investors who dig and research. But, in times like these, PE and VC have few opportunities to go public, [leading to] poor returns in the short term.”
Several experts told the News that Yale’s return for the 2024 fiscal year may be hard to interpret by itself.
According to School of Management professor Heather Tookes, Yale’s investment strategy, which emphasizes long-term gains, makes it hard to draw conclusions about returns from a single year. Skorina also emphasized that endowments “invest for the long term, 20 to 50 years and more.”
“Given the uncertainties about valuation of many of the assets in the endowment, as well as the usual variability in returns from year to year, I’m not sure I would make too much of the latest numbers,” William English, a professor at the School of Management, wrote to the News.
According to Longo, the S&P 500 will struggle to replicate the annual return of around 15 percent per year it has seen since the Great Recession of 2009. Longo added that he foresees “mid- to high- single digit returns” for U.S. stocks in the next ten years, citing a report from Goldman Sachs and concerns of persistent inflation.
David Yermack, a professor at New York University Stern School of Business, questioned Yale’s focus on alternative investments as an effective approach to institutional investment.
“Personally I’m skeptical of alternative investments, because there are high fees charged to the investors, and the field is very crowded, making bargains hard to come by,” Yermack wrote to the News. “My recommendation to Yale and all the big endowments would be to scrap the alternative investments and follow the simple strategy of passive investing via market index funds that hold broad portfolios of stocks and bonds. The fees and risks would be far lower.”
In contrast, Longo wrote that Yale’s alternative investments may perform well “as the capital markets gradually support more initial public offerings and mergers and acquisitions.”
Longo also expects that as the Federal Reserve cuts interest rates, Yale’s alternative investments will pay off.
“Is this only a short-term problem for Yale?” Yermack asked. “Nobody really knows, certainly not Yale’s own endowment managers. I’m sure they’re hoping it’s only temporary.”
Nearly 90 percent of investors at the endowment are Yale alumni.
Correction, Oct. 30: A previous version of this article stated that the Yale Investment Office’s softball team is named the “Stock Jocks;” however, the team is no longer active.