Among the 37 college and university endowments with $1 billion or more in assets whose most recent fiscal-year returns have been tracked by Pensions & Investments as of Nov. 1, the median return was 4.4%.
That was below the median return of 7.6% among the 65 public pension funds tracked by P&I for the period.
At the same time, all plans including corporate and public pension funds and endowments and foundations in the Wilshire Trust Universe Comparison Service posted a median return of 8.1% for the year ended June 30.
Harvard University, the largest endowment, returned 2.9%, above its prior fiscal year return of -1.8%.
Despite its positive return, Harvard’s portfolio declined to $50.7 billion from $50.9 billion the year before, due to the $2.2 billion the fund contributed to the university’s operating budget for the period.
N.P. “Narv” Narvekar, CEO of Harvard Management Co., which oversees the Cambridge, Mass.-based university’s investments, in his annual letter to the Harvard community said: “Fiscal year 2023 was a year of generally muted returns for asset classes outside of public equities.”
He noted the endowment’s limited allocation of 11% to public equity meant it could take little advantage of strong public equity performance. He also cited the issues with private market valuations.
“In FY22 private managers did not reduce the value of their investments in a manner consistent with declining public equity markets,” said Narekar in the university’s 2023 financial report. “Accordingly, those private asset managers did not subsequently increase the value of their investments in the context of rising public equity markets in FY23. Given the continued slowdown in exits and financing rounds over the last year, it will likely take more time for private valuations to fully reflect current market conditions.”
As of June 30, the endowment’s actual allocation was 39% private equity, 31% hedge funds, 6% bonds/Treasury inflation-protected securities, 5% each cash/other and real estate, 2% other real assets and 1% natural resources.
Yale University, with the second-largest endowment at $40.7 billion, on Oct. 10 reported a net return of 1.8% for the fiscal year ended June 30. The university also noted its annualized net return over the 10 years ended June 30 was 10.9%, but did not cite specific asset classes as drivers for its endowment performance.
In its 2023 financial report, Yale reported a total of $10 billion in venture capital assets, which was down from $11 billion the year before. Leveraged buyouts, meanwhile, increased to $10 billion from $8.9 billion the year before.
Yale did not specify which asset pools were represented by the investments, which could be allocated to the endowment or the university’s $2 billion pension fund.
Margaret Chen, global head of Cambridge Associates’ endowment and foundation practice, said private investments were indeed a performance challenge and there has been significant dispersion in returns between the large and smaller endowments.
“That’s something you see particularly on the largest endowments because they tend to have the highest exposure to private investments,” said Chen, “and I think you see that from the universities that have reported.”
Among the 11 endowments with $10 billion or more in assets, eight saw their returns for the year fall below the P&I universe’s median return of 4.4%.
The exceptions were Ann-Arbor based University of Michigan’s $17.9 billion endowment and the $13.6 billion endowment of Columbia University, New York, which posted net returns of 5.2% and 4.7%, respectively, for the fiscal year ended June 30. Stanford University’s $40.9 billion endowment matched the median.The endowment’s portfolio “benefited from strong public markets performance in the United States in fiscal 2023, and was also bolstered by hedge fund outperformance relative to benchmarks,” Kim Lew, president and CEO of the Columbia University Investment Management Co., said in an Oct. 17 news release.