Photographer: Craig Warga/Bloomberg

Yale, Long a Leader in Endowment Performance, Trails Peers

Updated on
  • Funds that favored public equities fared better in fiscal ’17
  • More than half of Yale’s assets are in alternative investments

Yale University, which boasts some of the best long-term endowment performance, trailed college funds that favored public equities in the year through June.

Yale’s endowment gained 11.3 percent in fiscal 2017, and the value of the fund rose by $1.8 billion to $27.2 billion, the New Haven, Connecticut-based school said Tuesday in a statement. The fund, the second-largest in U.S. higher education, has been led by David Swensen since 1985.

Many of the largest college funds attributed double-digit gains for the fiscal year to strong public equity markets. The S&P 500 Index returned 18 percent in fiscal 2017, while an MSCI index tracking foreign emerging and developed equities gained 16.6 percent.

More than half of Yale’s assets in fiscal 2017 were targeted for alternative investments including venture capital, hedge funds and leveraged buyouts, according to Yale. Domestic equities had a target allocation of 4 percent of the portfolio.

For fiscal 2018, allocation targets remain largely the same. The real estate target has been pared to 10 percent from 12.5 percent while absolute return, which includes hedge funds, has a 25 percent target versus 22.5 percent in fiscal 2017.

Read More: Tiny Iowa School Leads Endowments With 18.8% Investment Return

The average increase for more than 450 endowments and foundations in fiscal 2017 was 12.7 percent, according to data by Cambridge Associates.

Among the other Ivies, Dartmouth College leads with a 14.6 percent gain while Harvard University is the lowest with an 8.1 percent return. The University of Pennsylvania and Cornell University posted returns of 14.3 percent and 12.5 percent, respectively. Columbia University is the last of the eight-member Ivies yet to report.

The average investment return for the eight-member Ivy League in fiscal 2017, excluding Columbia, is 12.4 percent.

Yale remains a top performer over the long term, with a 12.1 percent average annual return for the past 20 years. Yale said its venture capital portfolio gained an annualized 106.3 percent in the period, which was “heavily influenced by large distributions during the internet boom.” Yale said it’s “inappropriate” to compound the return. The portfolio’s 20-year time-weighted return is 25.5 percent, according to the statement.

Yale has credited its outsized returns to its ability to select the best performing external money managers, and the endowment’s long relationships with them.

In Yale’s most recent annual endowment report, Swensen defended the fees paid to outside managers, saying a low-cost passive strategy would have “shortchanged” Yale’s students and faculty.

Yale estimated it will spend $1.3 billion from the endowment for fiscal 2018, representing about 34 percent of the university’s net revenues, according to the statement.

— With assistance by Kate Smith

    Before it's here, it's on the Bloomberg Terminal.