University of Michigan’s Endowment Posts 1.4% Investment Loss

  • Washington University’s fund declined 3.2% in fiscal 2016
  • U.S. college endowment performance is worst since 2009

Two of the largest Midwestern university funds posted investment losses, joining most school funds in the worst year for returns since 2009.

The University of Michigan reported a loss of 1.4 percent for the year ended June 30 while Washington University in St. Louis said its fund had an investment decline of 3.2 percent.

Michigan’s endowment, the third-largest among U.S. public universities, decreased by 3 percent to $9.7 billion, the Ann Arbor-based school said Thursday in a statement. Its 10-year annualized return is 6.7 percent. Washington University’s fund, the fifth largest in the Midwest, fell in value by 4.7 percent to $6.5 billion. Its 10-year annualized return is 5.3 percent; 5.6 percent for five years.

Global Markets

The universities join many others with investment losses, following volatility in global markets. About 450 endowments lost 2.6 percent on average in fiscal 2016, according to an estimate by Cambridge Associates. The Cambridge data, like the school returns, is net of fees.

Michigan said it made $304.3 million in distributions for university operations in fiscal 2016. The university raised $3.6 billion through gifts and pledges so far in its multiyear fundraising campaign, which has a goal of $4 billion. The endowment has been led by chief investment officer L. Erik Lundberg since 1999.

In its statement, Michigan didn’t detail its investment strategy or performance by asset class. In the year ended June 2015, the fund’s largest allotment was to stocks, some 28 percent, followed by absolute return at 16.8 percent and venture capital at 13.4 percent.

Active Managers

Active managers, including hedge funds, struggled in the fiscal year, Kimberly Walker, Washington’s chief investment officer since 2006, said in an e-mail.

The endowment “was under-exposed to private equity, venture capital and real estate relative to many of the larger endowments during these time periods which explains some of our performance differential,” she said. “While we have been in the process of increasing exposure to private market investments, this is a multi-year process.”

In addition, she noted “significant underperformance” of U.S. small capitalization stocks relative to large caps, as many active managers have mid- and small-cap biases; outperformance of “expensive” defensive stocks versus cyclical stocks, with many active managers who are cyclically biased. Market leadership was from under-owned defensive sectors -- utilities and telecom were up 27 percent and 19 percent respectively in the year, she said.

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