Global Equities Led University of Iowa’s 1.8% Endowment Decline

  • Endowment’s hedge funds also struggled in fiscal 2016
  • Median loss was 0.73% for college funds over $500 million

The University of Iowa endowment’s investments fell 1.8 percent in fiscal 2016, with global equities leading the decline, in one of the early signs of negative returns for college funds.

The 10-year-annualized return for the fund managed by the foundation, which makes up 70 percent of the endowment pool, is 5.2 percent, the foundation said in a report posted on its website. The school’s total fund was valued at $1.27 billion, down from $1.273 billion, which includes money managed by the university. The fiscal 2016 loss reflects the portion of the endowment managed by the foundation.

Endowments are expected to post the first annual losses since 2009, following a year of lackluster returns. Funds with more than $500 million lost a median 0.73 percent in the fiscal year through June 30, while endowments of all sizes lost 0.74 percent, according to the Wilshire Trust Universe Comparison Service. The data, from fund custodians, is gross of fees, so individual school results are likely to be lower. The University of North Carolina posted a 2 percent decline for the same time period.

Highly Liquid

“As the low-growth, low-interest rate environment moves into its eighth year, investors need to increase risk to achieve their respective return targets,” according to the report. “This is typically when investors are led down the wrong path and that is likely when mispricing will occur. The portfolio remains highly liquid and ready to take advantage of market dislocations.”

The fund’s largest asset allocation is 40 percent in global equity, with 20 percent each in real assets, fixed income and diversifying strategies.
 
Iowa’s global equities were down 4.6 percent during the fiscal year, led by international equities.

The best performance was global fixed income, which returned 1.6 percent in the fiscal year. An allocation to high yield added value while distressed-debt strategies also posted strong returns.

Within the diversifying strategies allocation, event-driven managers had the best performance during the last quarter, while hedge fund beta was the only strategy with negative returns, according to the report.

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