Fiscal year-end returns of the 25 largest U.S. endowments spanned a wide 1,080 basis-point range, from 9.7% to -1.1%.
Investment industry lore holds that the larger the endowment, the better investment staff it can afford to hire and the higher the fund's resulting annual returns. But the truth is not so rosy for some of the largest educational pools.
Harvard University, Cambridge, Mass., might have the largest U.S. endowment fund at $30.7 billion, managed by one of the largest university investment units but its -0.1% return as of June 30, the end of its fiscal year, ranked 18th among its 20 peers that share the same fiscal year and provided a return, according to a review by Pensions & Investments.
Joining Harvard with negative returns were the seventh largest endowment, University of California, Oakland, with $10.3 billion in assets and a -1.1% return, and the eighth largest, the $7.9 billion endowment of the University of Michigan, Ann Arbor, which returned -0.5%, all as of June 30.
The $10.3 billion endowment of Massachusetts Institute of Technology, Cambridge, the sixth largest fund, was the best performer among endowments with a June 30 fiscal year end, with an 8% return, followed by the $6.5 billion University of Chicago endowment, which came in at 6.8%; the $3.5 billion endowment of Dartmouth College, Hanover, N.H., with a 5.8% return; and Emory University, Atlanta, where the $4.4 billion endowment returned 5.7%.
Endowment investment staff couldn't be reached for comment by press time because their institutions were mostly closed for the holiday break, but industry observers noted the fiscal year ended June 30 was a tough one.
The average one-year return for the 20 endowments with fiscal years ended June 30 that provided a return calculated by P&I was 2.8%. That is well above the 1.2% average for the same date for endowments of more than $1 billion, according to the preliminary estimate of the research team tabulating results of the annual NACUBO-Commonfund Study of Endowments, which will be released on Jan. 31.
For endowments of all sizes, 2012 fiscal returns were much worse than returns for fiscal 2011. Preliminary results of the NACUBO-Commonfund survey showed an average one-year return as of June 30 of -0.3%, about 1,900 basis points below the prior year.
The 1.6% return of the $6.8 billion endowment of the University of Pennsylvania, Philadelphia, for example, was about 1,700 basis points lower than the return of the previous fiscal year.
“Last year was one in which when you looked at the math, the earnings, the cash flow, the balance sheets, the fundamentals, you would logically have bought equities,” said Monica Issar, managing director and head of the endowments and foundations group at J.P. Morgan Asset Management, New York.
“But so many outside macro factors made many investors nervous, and they didn't move into equities. Entities that were exposed significantly to stocks did well, earning not just market beta but also alpha from manager selection. 2012 was all about taking risk, especially equity risk,” Ms. Issar said.