University Endowment Returns Fall With Equity, Bond Markets

  • Biggest public colleges see investment income shy of standard
  • Slump in endowments comes after year of double-digit returns

U.S. public-university endowments, including the country’s second-wealthiest at the University of Texas, are reporting fiscal 2015 returns that fail to meet the annual industry standard.

University of Texas Investment Management Co., with $26.6 billion in endowment assets, said it had a weighted 3.5 percent average return for its two funds for the year ended June 30, Chief Executive Officer Bruce Zimmerman said in an e-mail. The Austin-based company invests funds for Texas A&M University and the University of Texas.  

Ohio State University, University of Florida Investment Co. and Indiana University Foundation all have reported this month that returns for the period were less than 5 percent. Endowments aim to achieve about a 7.5 percent return to protect against inflation and provide for university support expenses.

“Although most endowments and foundations benefited from double-digit returns in 2014, the outlook for future returns is more muted,” Monica Issar, global head of JPMorgan Chase & Co.’s endowment and foundation group, said in a research paper published this month. Funds will have to move away from passive investing strategies, she said.

The median return for large endowments and foundations this year is 3.6 percent, according to Wilshire Trust Universe Comparison Service. Weak U.S. equity and bond markets plagued investors. For the year ending June 30, a benchmark 60/40 portfolio of the MSCI World Index and Barclays Global Aggregate Index returned 1.6 percent.

“Those returns are not acceptable relative to target returns,” said John Keshner, managing director of endowments and foundations at Northern Trust Asset Management in Chicago, which oversees $946 billion of investments. He said heavy exposure to global equities, particularly in emerging markets, weighed down most endowments.

Ohio State, the sixth-wealthiest public college, with assets of $3.6 billion, said it returned 3.8 percent. The school had more than 40 percent of its portfolio in equities during the period, which dragged down exceptional returns from venture capital and real estate.

John Lane, who’s been the university’s chief investment officer since October, said alternative investments have boosted the portfolio. The Columbus, Ohio-based fund posted the lowest 10-year return last year among the 100 wealthiest U.S. endowments tracked by Bloomberg.

“Ohio State outperformed our benchmarks for fiscal 2015 in all major asset classes and in a better risk-controlled structure,” Lane said in an e-mail.

The overachiever among endowments that have reported so far this year is the UNC Investment Fund, which posted a 9.3 percent return for 2015. Managed by UNC Management Co., it includes endowed funds from The University of North Carolina at Chapel Hill and North Carolina State University.

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