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Michigan State Has 15.4% Annual Gain With Boost From Hedge Funds

  • Tulane, Penn State, Oklahoma State see double-digit returns
  • Investment gains are ‘a lot more fun’ than losses, CEO says

Michigan State University’s endowment had an investment gain of 15.4 percent in its last fiscal year, thanks to the robust performance of hedge funds.

“Our performance was driven by strong returns in our hedge fund portfolio, and active management was a significant contributor in our global equities portfolio,” Philip Zecher, chief investment officer of the $2.7 billion fund, said in an email on Wednesday. “We are still concerned that active management’s performance in the long-only, large-cap space is ephemeral.”

The school’s performance, one of the highest among a half-dozen large college funds that have reported returns, is preliminary. The endowment, like some others, will update returns to include the performance of private equity investments in the last quarter. The largest endowments typically have more in alternative assets and less in stocks, especially U.S. equities. 

‘Little Nervous’

Most college endowments, which end their year June 30, will publish results in September and October. Based on those schools that have already reported, endowment performance for the fiscal year was boosted by a robust stock market, most of it in the wake of President Donald Trump’s unexpected victory. 

Tulane University’s $1.3 billion fund has the top gain among those reporting -- 15.6 percent -- and credit goes to global equities, which was the fund’s largest allocation at 35 percent, said CIO Jeremy Crigler.

“Everything performed well, which is unusual for us so I’m a little nervous about next year,” Crigler said in an interview. “Even our fixed-income portfolio, which normally is one you’d expect not to add any value, we added over 200 basis points. That was our worst-performing asset class.”

College funds with more than $500 million had a median investment gain of 13.3 percent, while endowments of all sizes returned 11.3 percent, according to Wilshire Trust Universe Comparison Service. The S&P 500 Index returned 18 percent during that period. The Wilshire Bond Index returned 1.6 percent.

Keeping Up

Endowment investment chiefs said they remain concerned about the long-term performance. Funds had an annualized median return of 5.3 percent over the past decade for those over $500 million. Administrators say they need to earn at least 5 percent plus inflation to stay ahead without losing value.

Pennsylvania State University’s 12.6 percent gain helped push its annualized 10-year return to 5.6 percent. The endowment has half of its $4 billion in assets in public equities, including 27 percent in U.S. stocks. The fund is also 22 percent in private equity and 17 percent in bonds.

Investments in the University of Florida’s fund were up 11.8 percent, driven by public equities and natural resources. The public school endowment is valued at $1.6 billion, up from $1.5 billion the previous year. Florida’s 10-year return is 4.4 percent.

Read More: A QuickTake explainer on the riches of university endowments

Oklahoma State University’s investments increased 14.5 percent, helped by private equity, Ryan Tidwell, managing director of investments, said in an email.

The University of Oklahoma’s $1.1 billion fund gained 13 percent, buoyed in the second half of the year by investments in emerging markets, Guy Patton, chief executive officer of the school’s foundation, said in an interview.

“Thirteen percent is a lot more fun than minus 2,” Patton said, referring to the average college fund loss in fiscal 2016. “This was a terrific year and we’re cautiously optimistic about the current fiscal year. Nothing is inexpensive. Without substantial amounts of risk, there’s no return.”

— With assistance by Ivan Levingston

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