The estimated average return for large endowments — those having more than around $800 million — is a little less than 12% for fiscal 2013, driven by double-digit returns in listed equities and private equity. For the year ended June 30, global listed equities returned 19.4% as measured by the MSCI World index. For the nine months ended March 31, private equity returned 12.9% as measured by the Cambridge Private Equity index.Generally, private equity returns do not reflect publicly traded equity movements on a quarterly basis. Therefore, we added 70% of the return for the S&P 500 for the second quarter of 2013 to bring the estimated return of private equity to around 15% for the 12 months ended June 30.
On average, listed equities represented 30.8% of an endowment's portfolio at the end of fiscal 2012. With an average allocation of 18.8% at the end of fiscal 2012, private equity was the third largest allocation of large endowments.
Other alternative investments should contribute to the positive performance of endowments in fiscal 2013. Hedge funds, as measured by the HFRI Fund Weighted Composite index, returned 8.25% in the year ended June 30. Hedge funds had the second largest average asset allocation at 19.6% at the end of fiscal 2012.
Real assets, which includes real estate, returned an estimated 8.3%. At the end of fiscal 2012, real assets on average represented 15.4% of a large endowment's portfolio.
The lackluster performance of core U.S. fixed income should not cause too many headaches. U.S. fixed income, as measured by the Barclays Aggregate index, fell 0.69% for the year ended June 30. The average large U.S. endowment had only a 10.2% allocation to fixed income. Cash, which retuned .08% for the year as measured by the Citigroup 3-month Treasury Bill index, had an average allocation of 1.9% at the end of fiscal 2012.
Several endowments and foundations that release quarterly investment performance information have shown strong returns for fiscal year-to-date results through March 31. The University of Iowa Foundation, University of Washington, University of Arkansas Foundation Inc. and Indiana University Foundation returned 12.9%, 12.5%, 12.4%, and 12.1%, respectively, for the three quarters ended March 31.