Endowments get needed bounce but cautioned to stay nimble
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Blackstone assets increase 6% for quarter, 8% for year
      Jeffrey Epstein and Leon Black
      Apollo Global CEO Leon Black to retire after Epstein review
      Coller Capital collects $9 billion with latest secondaries fund
      Directional signs respresenting types of traditional and alternative investments
      Setter: Alternative secondary deals drop 27.7% in 2020
    • Bill Foley
      Foley-backed SPAC agrees to $7.3 billion deal with Alight
      Jason Schwarz, chief operating officer of Wilshire,
      New owners have big plans for future of Wilshire
      Amy Hsiang
      Meketa picks new public markets manager research director
      Will Martindale
      Cardano Group chooses group head of sustainability
    • World economic growth ‘a race between a mutating virus and vaccinations’ – IMF
      Fred DeSerio
      Commentary: A new era for manager due diligence
      CalSTRS participant retirements jump in second half of 2020
      COVID-19 hinders emerging Europe's hopes for DC boost
    • Signage outside the Blackstone Group Inc. headquarters in New York on July 13, 2019
      Blackstone to sell Alight to SPAC in $7.3 billion deal
      Jan Jacobson
      High-court ruling thwarts ERISA stock-drop lawsuits
      Joni Tibbetts
      Principal counts on advisers to get word out on PEPs
      Kenneth J. Munro III
      Empower names new national sales director
    • Indhira Arrington
      Ares Management adds chief diversity officer
      U.K. to require large plans to align climate-change reporting with task force standards
      BlackRock’s Fink urges others to join in net-zero commitment
      Global business leaders commit to stakeholder metrics
    • Gifford Fong
      Old ties help bring local version of JOIM to mainland China
      Ryan Tedder
      Strike up the band: KKR fund takes majority stake in Ryan Tedder catalog
      Helen Dean
      NEST’s Helen Dean earns U.K. recognition for service
      Hawk's Nest dam
      Brookfield donates golf course for firefighter training center
    • Gabe Plotkin, chief investment officer and portfolio manager of Melvin Capital Management, speaks during the Sohn Investment Conference in New York on May 6, 2019
      Citadel, Point72 back Melvin with $2.75 billion after losses
      Shanghai skyline
      Global hedge funds struggle even in a more open China market
      The Sun Hung Kai Properties Ltd. logo is displayed on the Sun Hung Kai Centre building in Hong Kong on Sept. 13, 2018
      SHK spins out East Point Asset Management
      Man holding a business card with Hedge Fund written on it
      Hedge funds chalk up decade’s best returns in 2020 – HFR
    • Blackstone assets increase 6% for quarter, 8% for year
      New Jersey discloses up to $475 million in commitments
      San Mateo fund revises asset allocation
      A case of Tootsie Roll Industries Inc. Pops Halloween candy is pictured before being distributed to stores at the Associated Wholesale Grocers distribution warehouse in Goodlettsville, Tenn., on Aug. 14, 2015
      Tootsie Roll gets the GameStop treatment
    • Technology Crossover Ventures raises $4 billion for latest fund
      The Bank underground station in the square mile financial district of the City of London
      U.K. seeks input on boosting its allure to money managers
      River and Mercantile chooses head of infrastructure
      Leon Black, chairman and chief executive officer of Apollo Global Management at the annual Milken Institute Global Conference in Beverly Hills, Calif., on April 27, 2015
      Black hangs on at Apollo as Epstein links cost him CEO role
    • New Jersey Division of Investment chooses deputy director
      San Mateo fund revises asset allocation
      Chicago Park Employees names new executive director
      Wisconsin state fund racks up 15.2% annual return
    • New Jersey Division of Investment chooses deputy director
      Chicago Park Employees names new executive director
      Credit Suisse brings on head of origination for direct lending
      Indhira Arrington
      Ares Management adds chief diversity officer
    • Pension funds continue private equity investing spree
      Big jump in private equity AUM expected over next 5 years
      Thoma Bravo takes in $22.8 billion for 3 funds
      Jason Thomas
      Data, technology become new prized possessions
    • Ingrid Jacobs
      Jones Lang LaSalle brings on head of diversity and inclusion
      EQT inks deal to buy real estate manager
      Chiang Ling Ng
      Hines hires first head of Asia-Pacific real estate investments
      Brand new apartment building on sunny day in spring with blooming trees
      Real estate returns forecast to trend lower – report
    • Neal and Brady
      Retirement security could be only issue both sides accept
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
      David Ireland
      Sponsors returning to questions about in-plan annuities
    • Retirement in emerging markets
      Outlook 2021
      The top 10 stories of 2020
      The best places to work in money management
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • New Jersey discloses up to $475 million in commitments
      Minnesota State Colleges seeks record keeper for 3 DC plans
      New York State Teachers assigns $375 million to 3 buyout funds
      GPIF hires Hamilton Lane for global private equity fund-of-funds allocation
    • New Jersey discloses up to $475 million in commitments
      Minnesota State Colleges seeks record keeper for 3 DC plans
      New York State Teachers assigns $375 million to 3 buyout funds
      GPIF hires Hamilton Lane for global private equity fund-of-funds allocation
    • Co-Administration, Financial Advisory, Transfer Agent, and Custodial Services
      Maryland State Retirement and Pension System
      Master Custodian and Related Services
      Transition Management Services
    • Taiwan Semiconductor’s No. 1 in the emerging markets book
      U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Infrastructure cartoon
      You must go big on infrastructure, Mr. President
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      view gallery
      25 photos
      2020 in editorial Cartoons
      view gallery
      25 photos
      Cartoons depict a year like no other
    • GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
      Gold Outlook 2021
      Bond ETFs show maturity during Covid market mayhem
      2021 Outlook: A rousing recovery
    • Fred DeSerio
      Commentary: A new era for manager due diligence
      Charles E.F. MIllard
      Commentary: It’s time to make 401(k) plans into real pension plans
      Michael McNally
      Commentary: New ‘investment-plus’ test poses risks to private equity investors
      Adam Waterous
      Commentary: Institutions urged to act now on opportunities created by current global oil disruption
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • Sponsored Content By MassMutual
      Leveraging Data to Manage Risk
      Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
      Sponsored Content By Aberdeen Standard Investments
      Taking a passive approach to the hedge-fund universe
      Sponsored Content By World Gold Council
      Gold: the most effective commodity investment
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      1:33
      A look at hiring activity in 2020
      watch video
      1:24
      U.S. stocks were 2020’s comeback kid
      watch video
      1:23
      Outlook 2021
      watch video
      1:52
      Buy gold's pullback?
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      Lessons From 2020: OCIO Model Passes Major Test of Governance
      The Institutionalization of Retail Part 3: Building a Successful Distribution Effort
      What might a Biden DOL and SEC mean for retirement plans?
    • POLL: The Biden administration’s economic plans
      POLL: Retirement issues in 2021
      POLL: Money managers' priority in Asia-Pacific region
      POLL: Retirement issues in the presidential election
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • By the Numbers for January 2021
      Graphic: A look at hiring activity in 2020
      Riskwatch for Q4 2020
      Taiwan Semiconductor’s No. 1 in the emerging markets book
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      Lessons From 2020: OCIO Model Passes Major Test of Governance
      The Institutionalization of Retail Part 3: Building a Successful Distribution Effort
      What might a Biden DOL and SEC mean for retirement plans?
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. Endowments
November 13, 2017 12:00 AM

Endowments get needed bounce but cautioned to stay nimble

James Comtois
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Arnold Adler
    Heather Myers sees manager selection as a big part of the reason behind the gains.

    Strong equity markets and smart asset allocation helped U.S. endowments recover from what was a dismal fiscal 2016.

    But industry observers noted investment teams must remain vigilant if they want to maintain those strong returns. All 43 funds tracked by Pensions & Investments had positive returns for the fiscal year ended June 30, with all but two — Harvard University and University of Minnesota — posting double digits.

    "It was a good year. They've had a couple of struggling years, so they needed a good year," said Heather Myers, a partner, non-profit practice leader at Aon Hewitt Investment Consulting, Boston.

    Ms. Myers noted smart asset allocation and strong equity markets were major drivers of performance for endowments in fiscal year 2017.

    Those universities that had global and/or emerging markets equities did well, she said; even some of the riskier fixed income strategies were strong. But it wasn't all just asset allocation. Manager selection also played a role well this past fiscal year. "All those absolutely contributed," Ms. Myers said.

    Kenneth Shimberg, U.S. endowment and foundations chief investment officer for outsourced CIO services at Mercer Investments, Boston, agreed. "U.S. endowments and foundations had a very strong fiscal year, one of the strongest in recent years as risk assets had tremendous performance," he said.

    Defensive assets had a weaker year, said Mr. Shimberg. The bond market was marginally down, but because endowment portfolios tend to be light on traditional fixed income, this wasn't much of an issue. "It was a year when traditional long only equities were the driver of returns," said he said.

    One-year returns for fiscal 2017 ranged from 18.8% for the $1.9 billion endowment of Grinnell College, Grinnell, Iowa, to 8.1% for Harvard's $37.1 billion endowment. By contrast, the returns of more than 80% of the 31 funds tracked by P&I were negative for the fiscal year ended June 30, 2016, ranging from 3.4% to -3.4%. (See P&I's universe of ​ endowments and their returns at www.pionline.com/endowments.)

    Although an exact figure was not immediately available, Grinnell's endowment outperformed its performance benchmark. By asset class, most returns were in the double digits. Distressed debt returned 27.4%; public equities, 25.2%; hedge funds, 19.5%; private equity, 18.5%; growth equity, 17.9%; venture capital, 9.7%; and real assets, 8.5%.

    The average 12-month return for the large U.S. endowments in P&I's universe as of June 30 was 13.2%, vs. -1% for the prior year. The median return was 13.4% this year.

    The Wilshire Trust Universe Comparison Service reported that the one-, five- and 10-year average returns for all endowments were 11.5%, 7.7% and 5%, respectively. Meanwhile, TUCS reported that the one-, five- and 10-year average returns for endowments with more than $500 million were 13.6%, 8.7% and 5.2%, respectively.

    Strong equity markets

    "Equity markets were very strong in fiscal year 2017," said Mark Brubaker, Pittsburgh-based managing director and head of Wilshire Consulting's outsourced CIO business. "Other areas where endowments have been allocating assets, such as private credit, also did well. High yield was up almost 13%. So, a lot of asset classes were up double digits for the year."

    The 435 endowments and foundations tracked by consultant Cambridge Associates Inc., Boston, had an average return of 12.8% for the year ended June 30, compared to an average of -2.4% for the prior year.

    "Returns were a role reversal of fiscal year 2016," said Margaret Chen, managing director and head of Cambridge Associates' OCIO business. "But because the returns were so positive, it makes it easy to have a short memory about what happened last year, and it's worth pausing to remember."

    Ms. Chen said this year, three factors helped: equity diversification, active management and the lack of geopolitical events on markets.

    Following Grinnell College, other schools to see the largest one-year returns were the $129 million University of Houston Foundation, with 16.06%, and the $1.5 billion University of Arkansas Foundation and $2.7 billion Michigan State University endowment, both at 15.4%. University of Houston Foundation's endowment is separate from the University of Houston System's $572 million endowment.

    Of the schools that disclosed 10-year annualized returns, the big winners were the University of Houston, at 7.74%; and the $10 billion Columbia University and $8.62 billion University of Virginia endowments, both at 7.3%.

    Despite achieving a positive return this year after posting a return of -2% during the 2016 fiscal year, Harvard's endowment — the largest in the country — posted the lowest return among the schools tracked by P&I.

    Nirmal P. "Narv" Narvekar, president and CEO of Harvard Management Co., which oversees the endowment for the Cambridge, Mass.-based university, called the performance "disappointing and not where it needs to be" in its annual report.

    Mr. Narvekar added, however, that with the changes he has made and plans to make with HMC, he is confident the management company "will be in a far better position" moving forward.

    Since taking over as CEO in December, Mr. Narvekar has reorganized the company, reducing staff as part of a plan to change its investment strategy from a specialized or "silo" approach to a generalist investment model in which all members of the investment team take ownership of the entire portfolio.

    As a result, HMC has largely ended internal management of public market assets as of June 30. It also shut down its relative value and internally managed equity platforms.

    Don't be complacent

    Although sources agreed endowments had a decidedly good year, they also warned against complacency.

    Ms. Myers said that going forward, endowments need to make sure "to continue to be vigilant in seeking opportunities."

    "We believe it will be challenging going forward," she said, adding that endowments need to seek diversified portfolios.

    Mr. Brubaker agreed, saying Wilshire anticipates a low-return environment. "And that's been the big challenge for endowments. How do you generate the returns you need to accommodate the spending?" he asked.

    Mercer's Mr. Shimberg also noted the headwinds that endowments will face going forward will be "identifying attractive assets."

    Another big headwind university endowments could face is the recently proposed tax bill.

    Under the House Republican tax reform plan passed by the Ways and Means Committee Nov. 9 and the bill introduced in the Senate the same day, some university endowments would be required to pay a 1.4% tax on investment income. The tax applies to private schools with assets of more than $250,000 per student and exempts small schools. Public colleges and universities aren't included.

    Private endowments that pay executive compensation above $1 million also would be required to pay a 20% excise tax on it.

    Thomas Conroy, spokesman for Yale University, New Haven, Conn., said in an email that the tax bill "would impose a permanent tax on Yale's resources" and that he found it "disappointing that the legislation relies so heavily on colleges and universities … to raise revenue to enable tax cuts."

    "We hope that the House of Representatives will reconsider these proposals," Mr. Conroy added.

    Yale's $27.2 billion endowment — the second largest after Harvard — returned 11.3% for the year ended June 30, vs. 3.4% for the year-earlier period.

    Opposition to tax proposal

    Representatives from other schools also have spoken out against the tax proposal as it is currently written.

    Daniel Day, spokesman for Princeton University, said in a statement the Princeton, N.J.-based school, which has a $23.8 billion endowment, is "strongly opposed" to the provision of the 1.4% excise tax. "Endowments are not piggy banks to be drawn on only occasionally. They have to generate payout every year and keep pace with rising costs, like an annuity for someone who will live in perpetuity," he added.

    Ricardo Vazquez, spokesman for the University of California, Oakland, $10.8 billion, also said the university opposes "the inclusion of provisions in tax reform proposals that negatively impact the tax treatment of endowments." He added: "The creation of new excise tax liabilities on university endowments sets a bad precedent given the critical role endowments play in helping colleges and universities provide financial aid to their students as well as support for faculty."

    Related Articles
    Endowments and foundations top the third-quarter InvestorForce returns
    Diversity becoming more important to asset owners, new research shows
    GOP tax reform a mix of good and bad so far
    Tax reform? Hold your breath
    Drexel University posts 14.7% fiscal-year return on endowment
    Recommended for You
    University of Kentucky extends consultant's contract
    University of Kentucky extends consultant's contract
    University of Virginia endowment posts 5.8% for fiscal year
    University of Virginia endowment posts 5.8% for fiscal year
    Ohio State University's 1.2% return for fiscal year falls short of benchmark
    Ohio State University's 1.2% return for fiscal year falls short of benchmark
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management
    sponsored
    Events
     
     
    Sponsored
    White Papers
    GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
    Gold Outlook 2021
    Bond ETFs show maturity during Covid market mayhem
    Global gold-backed ETFs: A popular gateway to the gold market
    2021 Outlook: A rousing recovery
    Climate change and emerging markets after Covid-19
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center