Yale University's $29.4 billion endowment, the second-largest university endowment, returned a net 12.3% for the fiscal year. The New Haven, Conn.-based university announced that its endowment returned an annualized net 7.4% and 11.8%, respectively, for the 10 and 20 years ended June 30.
The Ivy League school also announced in October that it is getting into the market for cryptocurrencies and out of the market for assault weapon retailers.
Margaret Chen, managing director and head of Cambridge Associates LLC's OCIO investment management unit, Boston, noted that "a high allocation to equities and low allocations to bonds" is what "drove overall performance" for U.S. endowments. She, too, pointed out that high allocations to private investments and venture capital "would have been very additive to fiscal-year performance."
"The top endowments had over 30% allocations to private investments," she noted.
The second-best place for an endowment to be to perform well, according to Ms. Chen, was strategies that benchmark against the S&P 500 because it "has continued to do very well," she said. The index was up 12.2% in the year ended June 30.
Ms. Chen noted that although private investments have been attractive due to their long investment horizon, those endowments that started investing in private equity early have benefited more and have had greater access to the best managers.
"So, it takes time," she said. "That's why you see this dispersion between top performers and not."
Endowments are also beginning to derisk and become more willing to sit on cash, she noted.
Ms. Chen pointed out four potential challenges that endowments should be on the lookout for in the near future. The first is that the strong equity market of the last 10 years has pushed diversification to the wayside for some institutions.
"When the markets are doing well, investors don't think about risk as much as they should," she said.
The second challenge is that there's an expectation the next 10 years will likely not be as good as the past decade, which means that endowments will have to consider how to accommodate different market conditions when managing budgets for future fiscal years.
The third challenge is geopolitical uncertainty, particularly with regard to trade considerations.
The fourth and final challenge that Ms. Chen foresees for endowments is figuring out how to differentiate their investment strategies. "There's a risk when everyone's invested in the same thing.
"To be a top performer, you have to be different."