Yale’s 3.4% Gain Is Top Performer as Endowments See Losses

  • Ivy League rival Harvard University lost 2% in fiscal year
  • Some of the largest college endowments are posting declines

Yale University posted a 3.4 percent investment gain, besting rival Harvard University and most college endowments that reported annual losses. 

The value of Yale’s endowment declined less than 1 percent to $25.4 billion because the targeted spending rate of 5.25 percent was higher than the fund returned in the year ended June 30, according to the New Haven, Connecticut-based university. Yale, which has the second-largest U.S. school fund behind Harvard, has the best return among school funds that have posted so far. The endowment has been led by David Swensen for three decades.

Three of Yale’s Ivy League peers posted negative returns. Harvard on Thursday said its investments declined by 2 percent, lowering the value of the largest fund in higher education by $1.9 billion to $35.7 billion. The University of Pennsylvania’s loss was 1.4 percent; Dartmouth College’s fund dropped 1.9 percent. More than a dozen university endowments with assets of more than $1 billion have reported investment declines as results come in over the next month.

Yale’s statement on Friday didn’t disclose what strategies helped produce a positive return or performance by asset class. Harvard blamed its loss primarily on poor investments in stocks as well as natural-resource holdings in South America. The University of Pennsylvania, with a $10.7 billion fund, said positive returns from private equity, real estate and fixed-income investments partly offset negative performance from global equities.

“If one were to try to do a forensic analysis, it seems the source of their incremental returns likely is from leveraged buyouts and venture capital,” Tim Keating, president of Keating Wealth Management, an investment adviser based in Greenwood Village, Colorado, said about Yale.

Yale’s asset allocation targets for fiscal 2017 were largely unchanged from the previous year. More than 50 percent of assets are in illiquid investments, including private equity and “absolute return,” which includes hedge funds.

The fiscal 2016 gain is the second-lowest for Yale in 10 years; the fund lost 24.6 percent in 2009. The school said the 10-year annualized return is 8.1 percent. Performance over the past decade was strongest in venture capital at an annualized 15.9 percent, foreign equities at 13.7 percent and domestic equities at 10.5 percent. The school disclosed this year that its original $2.7 million investment in LinkedIn Corp. produced $84.4 million in gains.

Many endowments have sought to replicate the so-called Yale model, pioneered by Swensen, which prizes more illiquid assets including private equity. The school’s highest target allocation for fiscal 2017 is 22.5 percent in absolute return, followed by 16 percent in venture capital and 15 percent each in foreign equity and leveraged buyouts, according to the school’s statement.

Endowments with more than $500 million lost a median 0.73 percent, according to the Wilshire Trust Universe Comparison Service. The data, from fund custodians, is gross of fees, while most schools report returns including fees. 

The university estimated it will spend $1.2 billion from the endowment for fiscal 2017, with earnings from the fund comprising about one third of the school’s net revenues.

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