Endowments Still 25% Away From Pre-Lehman High, Commonfund Says
U.S. endowments, after record losses in the market rout triggered by the collapse of Lehman Brothers Holdings Inc., are 25 percent below pre-crisis highs and may need four years to fully recover, Commonfund said.
Endowments gained an average of 12 percent in the year ended June 30, trailing the 14 percent return of the Standard & Poor’s 500 Index, according to a report released today by Commonfund and the National Association of College and University Business Officers. Funds rose about 15 percent from July through December, said Verne Sedlacek, Commonfund’s chief executive officer, while the S&P 500 climbed 23 percent.
“We’re still not at all out of the woods,” Sedlacek said yesterday at a press briefing in New York. Commonfund, in Wilton, Connecticut, manages more than $26 billion for not-for- profit clients and surveyed 850 U.S. schools. “There are still many pressures on higher education,” he said.
Universities sold bonds, laid off employees and delayed construction after Lehman’s September 2008 bankruptcy led to the worst financial crisis since the 1930s. School funds lost an average of 19 percent in the year ended June 2009, Commonfund and the university officers’ association said last year. That was the biggest loss in the 35 years for which records have been kept, according to the research.
Schools may take three to four years to get back to 2008 peak levels even with rising markets, Sedlacek said.
The average endowment’s allocation to alternative strategies such as private equity, real estate and commodities climbed to 52 percent last year from 51 percent the previous year, Commonfund and Nacubo said.
Swensen’s Strategy
Yale University’s David Swensen pioneered the idea of using the hard-to-sell assets to try to beat stocks and bonds. The stakes ballooned as a percentage of large endowments when markets tumbled, saddling schools with funding shortfalls.
The $16.7 billion fund at Yale in New Haven, Connecticut, was the worst performer in the Ivy League last year as investments rose 8.9 percent, while Harvard University, whose $27.6 billion endowment makes it the world’s richest school, ranked fifth with an 11 percent gain. In the decade through June, Harvard and Yale averaged increases of 7 percent and 8.9 percent a year, topping the 3.4 percent annualized return of universities surveyed by Commonfund and Nacubo.
Columbia University’s $6.5 billion fund in New York was the best performer among the eight Ivy League schools last year, with a 17 percent gain, followed by Princeton University’s $14.4 billion endowment in New Jersey, which increased 15 percent. Cornell University’s $4.4 billion endowment in Ithaca, New York, matched University of Pennsylvania’s $5.7 billion fund with a 13 percent return.
To contact the reporter on this story: Gillian Wee in New York at gwee3@bloomberg.net.
To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net.
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