Trump Bump Gives College Endowments Big Gains After a Lousy 2016By
Median annualized returns for the past decade were just 5.3%
Investment chiefs still see era of low returns going forward
U.S. college endowments rebounded in fiscal 2017 from their worst annual decline since the 2009 recession, fueled by a stock market rally that accelerated after Donald Trump’s surprise victory.
College funds with more than $500 million had median investment gains of 13.3 percent in the year ended June 30, according to Wilshire Trust Universe Comparison Service. The S&P 500 Index returned 18 percent during that period, most of it coming in the wake of the Nov. 8 election. The Wilshire Bond Index returned 1.6 percent.
The median return for endowments of all sizes was 11.3 percent, according to the database from Wilshire Associates, which reports quarterly on about 1,300 plans with $3.6 trillion of assets under management. A year earlier, the median endowment lost 0.7 percent on its investments.
“The public equity returns have been exceptional for the last year,” said Tim Jarry, chief investment officer for the College of Holy Cross, who expects to report an investment gain of about 12 percent for the year ended June 30. “That’s the big driving force behind those numbers.”
Jarry’s Worcester, Massachusetts-based fund, with about 45 percent of its portfolio in domestic and foreign stocks, ended the year with roughly $755 million under management.
The University of Michigan, with $10 billion at the end of fiscal 2016, reported a 14.4 percent gain in its total marketable security portfolio for the 11 months through May. The University of California, which started the year with $9.1 billion, posted a 13.6 percent gain over the same span. The endowments typically report full-year results starting in September.
Large foundations, endowments and public pension funds had median gains that outperformed the typical 60/40 portfolio, which returned 11.85 percent, according to Robert Waid, managing director of Wilshire Associates.
“The stability in the equity markets has helped,” Waid said in a telephone interview. “Private equity, U.S. equities and international equities have been the driving force.”
U.S. college funds with more than $1 billion of assets invested 13 percent of their portfolios in U.S. equities and 19 percent in foreign stocks, according to fiscal 2016 data collected by money manager CommonFund and the National Association of College and University Business Officers. By comparison, funds of $25 million to $50 million invested 38 percent in U.S. equities and 17 percent in foreign stocks.
“That diversification that a lot of these plans are implementing starts to pay off when those other asset classes do well,’’ Waid said. “You stay the course.’’
The 10-year median annualized return through June 30 for endowments of all sizes was 5.3 percent, according to Wilshire. Despite the historically big gains for fiscal 2017, chief investment officers still expect to operate in an era of low returns for the foreseeable future.
“In some respects it makes you more nervous,” Jarry said of the latest returns. “We’re just trying to find great managers and let them do what they do.”